Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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Is Cigna Express Scripts Making Money?

A great way to tell how lucrative pharmaceuticals are is to ask is Cigna Express Scripts making money. To explain, Cigna Corp (NYSE: CI) Is America’s fourth largest insurer and largest mail order and specialty pharmacy.

Forbes estimates Cigna was America’s fourth largest health insurance provider with 15.9 million policyholders in 2018. In addition, Drug Channels estimates Cigna is the third largest pharmacy operator in America with $46.5 billion in prescription revenues in 2018. Because of that revenue, Drug Channels calculates Cigna controlled 11% of the U.S. prescription drug market in 2018.

To elaborate, CVS Health (NYSE: CVS) was America’s largest pharmacy operator with $102.8 billion in revenues in 2018, Drug Channels calculates. In detail, CVS generated $64.2 billion in revenues from 15.1% of the retail pharmacy market. Plus, CVS made $38.6 billion in revenues from 9.1% of the mail-order pharmacy market.

Furthermore, Walgreens (NASDAQ: WBA) making $74.4 billion in revenues from 17.5% of the overall prescription market. UnitedHealth Group’s (NYSE: UHC) OptimumRX subsidiary came in the fourth place by making $25.95 billion from 6.1% of the mail order pharmacy business. Finally, Walmart (NYSE: WMT) placed fifth by accumulating $20.9 billion in revenues from 4.9% of the retail pharmacy market.

Express Scripts is Losing Market share

The Cigna Corp is having some problems because it is the only one of America’s 10 biggest pharmacy operators losing revenues. To elaborate, Drug Channels estimates Cigna/Express Scripts revenues fell by -1.8% in 2018.

In contrast, CVS’s revenues grew by 7.7%, Walgreen’s revenues grew by 15.6%, UnitedHealth’s pharmacy revenues grew by a whopping 23.4%, and Walmart’s pharmacy revenues by 2.1% in 2018. Thus, Cigna’s pharmacy revenues are shrinking.

However, Cigna’s revenues grew by an incredible 238.14% over 2018 in the quarter ending on 30 June 2019, Stockrow claims. To clarify, Cigna’s December 2018 purchase of Express Scripts causes the astounding revenue growth.

Notably, Stockrow gave Cigna a revenue growth rate of 37.61% in the last quarter of 2018. Conversely, Cigna had a revenue growth rate of 232.48% in the first quarter of 2019.

Why is Express Scripts losing Market Share?

Express Script’s revenues are falling because Americans seem to be turning away from mail-order pharmacies.

Notably, CVS’s specialty pharmacy revenues shrank by -0.1% in 2018, Drug Channels estimates. However, UnitedHealth Group’s revenues grew by 23.4% in 2018. However, Express Scripts horrendous reputation could cause the shrinkage.

For example, Glassdoor labels Express Scripts the company “voted the worst company to work for by pharmacists.” In addition, an anonymous individual Glassdoor identifies as a former Express Scripts employee alleges Express Scripts fires pharmacists for not meeting quotas. Moreover, the same anonymous complainer accuses Express Scripts of treating adults like children.

I suspect horrible work conditions leads to poor customer service which drives customers away from Express Scripts. However, management could easily fix this problem by hiring better supervisors and eliminating unpopular rules.

Cigna is Making a Lot of Money

On the other hand, financial numbers show the Cigna Group is making a lot of money.

For example, Cigna posted a gross profit of $6.28 billion on revenues of $38.819 billion for the quarter ending on 30 June 2019. In addition, Cigna reports an operating income of $2.163 billion and a net income of $1.408 billion for the same quarter.

In contrast, Cigna reported revenues of $11.48 billion, a gross profit of $4.022 billion, an operating income of $1.161 billion, and a net income of $806 million on 30 June 2018. Therefore, buying Express Scripts was a wise choice for Cigna, the company is making more money and generating more revenue.

However, Cigna’s cash flow has grown little. To explain, Cigna reported an operating cash flow of $995 million and a free cash flow of $878 million on 30 June 2018. A year later Cigna reported a free cash flow of $736 million and an operating cash flow of $878 million.

Thus, Cigna’s Express Scripts purchase did not lead to a significant increase in cash flow. Conversely, Cigna has more cash on hand with Express Scripts. To elaborate, Cigna had $5.275 billion in cash on hand on 30 June 2019 and $3.854 billion in cash assets a year earlier. In detail, Cigna had $1.665 billion in short-term investments and $3.61 billion in cash and equivalents on that day.

Is Cigna a Good Dividend Stock?

I think Cigna (NYSE: CI) is a terrible dividend stock because of its low annual payout; 4₵ on 10 April 2019. Notably, that dividend has not grown since 2013.

As a result, estimates Cigna had a dividend yield of 0.02%, an annualized payout of 4₵ and a payout ratio of 0.3% on 19 August 2019. If this payout continues, stockholders will make little money from Cigna’s dividend.

Moreover, Mr. Market overpriced Cigna at $161.98 a share on 19 August 2019. To clarify, I think the lack of a significant dividend makes Cigna a poor insurance stock.

Cigna is not a Value Investment

Cigna is not a value investment because of its high price. However, I consider Cigna a candidate for a value investment because of its high rate of growth.

I find little value at Cigna because it seems incapable of generating a lot of float from its health insurance business. To clarify float is a stream of cash from constant payments that customers make to a company.

Warren Buffett famously cites insurance premiums as his favorite example of float. However, I could find no notable health insurance holdings in Berkshire Hathaway’s (NYSE: BRK.B) list of subsidiaries. Yet, Berkshire Hathaway (NYSE: BRK.A) owns dozens of insurers.

Is Health Insurance Profitable?

My guess is Uncle Warren dislikes health insurance because of its inability to generate steady float. In addition, Buffett is probably leery of the heavy government involvement in health insurance.

Significantly, Buffett is an outspoken proponent of single-payer health care or Medicare for All, CNN Money reveals. To explain, single-payer is a government owned and tax-financed health insurance system for all citizens.

Given his support for single-payer I suspect Buffett thinks health insurance is inherently unprofitable, so he stays away from it. I have to agree with Uncle Warren; I think health insurance is inherently unprofitable, so staying out of health insurance is a wise move for stock investors.