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Cigna, Humana hit targets
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May 2, 2001: 2:15 p.m. ET
Managed care firms meet targets; Cigna warning depresses shares
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NEW YORK (CNNfn) - Managed care companies Cigna Corp. and Humana Inc. reported improved first-quarter results in line with Wall Street expectations Wednesday, despite both companies seeing a drop in revenue, but a Cigna warning triggered a downward trend in the sector.
In a conference call with analysts, Cigna (CI: down $0.49 to $94.32, Research, Estimates) lowered guidance for its second quarter and full year, and by early afternoon the stock had fallen nearly 15 percent.
Investors were spooked by Cigna's accelerating medical cost trends and slowing membership enrollment even more than by the No. 3 U.S. HMO's lowered guidance for second-quarter and full-year 2001 earnings, and they projected those concerns onto the entire HMO sector, analysts said.
"It is those trends that are bothering people," said David Shove, an analyst at Prudential Securities. "The (premium) pricing trends and (medical) cost trends have spooked investors."
Cigna, which provides both health insurance and employee retirement plans, earned $272 million, or $1.76 a share, for its first quarter, excluding the gain from the sale of a Japanese life insurance operation. That matches forecasts of analysts surveyed by earnings tracker First Call and is up from the $271 million, or $1.57 a share, it earned a year earlier.
Revenue at the Philadelphia-based company fell to $4.7 billion from $4.9 billion a year earlier.
Declining enrollment in certain segments of Cigna's HMO -- or health maintenance organization -- business and rising medical cost trends led J.P. Morgan analyst Lori Price to downgrade the stock to "long-term buy" from "buy." She said gains in Cigna's indemnity operation were offset by the below-target performance from its HMO and retirement businesses.
"We had expected enrollment to grow," Price said in a research note. She said premium price increases of 10 percent were inadequate to offset medical cost inflation of 11 percent in the quarter.
Cigna also said during its conference call that it expects earnings per share for the second quarter and full year to fall below its prior guidance, due mostly to a "stock market impact" on its retirement business, and far below analysts' estimates.
The company predicted second-quarter earnings of $1.70-to-$1.80 a share, below analysts' forecasts which had ranged from $1.81-to-$1.93. Cigna said it expects 2001 earnings of $7.25-to-$7.45 a share, compared with analysts' consensus expectations of $7.56 a share and a range of $7.45-to-$7.75 a share.
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Humana (HUM: down $0.30 to $9.96, Research, Estimates), which exited a number of businesses and products last year, reported net income of $27 million, or 16 cents a diluted share, up from $21 million, or 13 cents a share, a year earlier. That result met the First Call consensus.
Revenue at the company fell to $2.4 billion from $2.6 billion a year earlier.
Humana serves about 6.5 million members in 18 states and Puerto Rico.
"Humana's results were good," Shove said. "They are raising (premium) rates faster than their competitors. For example, Cigna got 10 percent. Humana got 14 percent. So Humana is ahead of the cycle. But the question is, are they going to have enough breathing room to complete the turnaround? That's the unknown." 
-- from staff and wire reports
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Cigna
Humana Inc.
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