Today's significant decrease in Cigna's stock value is causing concern.
Cigna's shares took a hit on Thursday, dropping 8.4% by 1:20 p.m. ET, after the health insurance giant's Q4 earnings didn't meet expectations. The stock had dipped as much as 11.3% earlier in the day, while the S&P 500 and Nasdaq Composite saw modest gains and losses, respectively.
The company reported a Q4 revenue of $65.65 billion, beating Wall Street's estimate of $63.44. Yet, rising medical costs led to a significant EPS miss, delivering $6.64 per share instead of the anticipated $7.82. Moreover, Cigna reported a higher medical cost ratio of 87.9%, compared to the expected 84.7%.
CEO David Cordani reassured investors during the earnings call, stating that the company is implementing corrective actions to tackle these short-term pressures and is also working on steps to boost its long-term growth strategy. The team revealed that it would take two years to recover the margins affected by the higher-than-expected medical costs. Consequently, Cigna forecasts EPS for 2025 to reach $29.50, whereas the market expected a guidance of $31.50 per share.
However, shareholders can take solace in the board's decision to boost the quarterly dividend by 8% and authorize an extra $6 billion for share repurchasing.
Cigna's earnings miss was largely attributed to increased medical costs, particularly in the stop-loss product of Cigna Healthcare. This led to a higher-than-expected medical loss ratio of 87.9% in Q4, up from 82.2% in the previous year's quarter. The incremental medical costs resulted in an adjusted EPS of $6.64, falling short of analyst estimates of $7.82 per share.
Despite the setbacks, Cigna remains optimistic about its future growth strategy, focusing on controlling the impact of rising medical costs while maintaining a positive outlook. The company's dividend increase and share repurchase program hint at its confidence in its financial performance prospects.
In light of Cigna's Q4 earnings miss due to higher medical costs, some investors may want to reconsider their investing strategies in finance. To counteract the short-term pressures, the company is implementing corrective actions and working on a long-term growth strategy, which includes a boost in the dividend by 8% and an additional $6 billion for share repurchasing.
