Cigna's Q1 Surge: Can Evernorth's Momentum Outweigh Healthcare Headwinds?

Cigna Group’s first-quarter 2025 results painted a picture of bifurcated performance: robust growth in its pharmacy and specialty services divisions contrasted with challenges in traditional healthcare operations. The insurer’s adjusted income from operations rose to $6.74 per share, while total revenue surged 14% year-over-year to $65.5 billion, driving a revised full-year outlook. Yet beneath the headline numbers lies a critical question: Can Cigna sustain its upward trajectory amid rising medical costs and strategic shifts?

The Evernorth Engine
The star of the quarter was Cigna’s Evernorth Health Services segment, which generated $53.7 billion in adjusted revenue—a 16% jump—driven by strong performance in both Pharmacy Benefit Services (up 14%) and Specialty and Care Services (up 19%). Biosimilar adoption and specialty drug volume growth fueled this segment’s expansion, with adjusted pre-tax income climbing 5% to $1.4 billion. This performance underscores Evernorth’s growing dominance in pharmacy benefits, a space where scale and cost discipline are critical.

The segment’s success has become a cornerstone of Cigna’s strategy. Management now projects Evernorth to contribute at least $7.2 billion in pre-tax adjusted income for 2025, a figure that could lift its valuation as a standalone entity if ever spun off.

Healthcare Division Struggles
While Evernorth surged, Cigna Healthcare faced headwinds. Its adjusted pre-tax income fell 4% to $1.287 billion, with the medical care ratio (MCR) rising to 82.2%—up from 79.9% in 2024. The MCR spike reflects higher stop-loss costs and delays in closing the Medicare business divestiture to HCSC. Medical customer relationships dropped 6% to 18 million, directly tied to the HCSC transaction.

The divestiture, finalized in March 2025, removed $1.1 billion in annual revenue but also shed high-cost Medicare lines. While this move cleansed Cigna’s portfolio, the lingering impact on customer counts and near-term profitability remains a concern.

Balance Sheet and Capital Allocation
Cigna returned $2.6 billion to shareholders via buybacks in Q1, reducing its share count by 8.2 million. This aligns with its long-term strategy to reward investors while navigating operational shifts. The company’s $222 million in favorable prior-year reserve development also eased pressure on medical costs, though medical payable balances fell to $4.37 billion—a positive sign of cash flow management.

The Revisions: A Conservative Raise?
Cigna’s full-year 2025 outlook now targets at least $29.60 per share in adjusted income, a $0.10 increase from prior guidance. While this revision reflects Evernorth’s outperformance, the narrow raise suggests cautious optimism. The company also lowered its 2025 Cigna Healthcare pre-tax income target to $4.125 billion, down from $4.25 billion, acknowledging lingering cost pressures.

Risks and Roadblocks
- Medical Cost Volatility: The MCR’s 2.3-point increase highlights vulnerability to unexpected healthcare inflation.
- Regulatory Pressure: Rising scrutiny of drug pricing and insurer margins could cap Evernorth’s growth.
- Divestiture Hangover: The delayed Medicare sale’s impact on customer relationships and medical costs remains unresolved.

Conclusion: A Dual-Track Future
Cigna’s Q1 results reveal a company in transition. Evernorth’s pharmacy and specialty services—now a $53.7 billion juggernaut—offer a clear path to growth, but its healthcare division’s struggles underscore the risks of ceding high-cost lines. The revised $29.60 earnings target is achievable if Evernorth’s momentum persists and medical costs stabilize.

Key data points reinforce this outlook:
- Evernorth’s 16% revenue growth vs. Cigna Healthcare’s 4% pre-tax income decline.
- The $7.2 billion pre-tax target for Evernorth (vs. $4.125 billion for healthcare).
- Share repurchases totaling $2.6 billion in Q1, signaling confidence in long-term value.

Investors should monitor two metrics:
1. The quarterly MCR for Cigna Healthcare, which must trend downward to sustain profitability.
2. Evernorth’s ability to leverage its scale in biosimilars and specialty drugs, which could drive margin expansion.

While Cigna’s stock has underperformed peers like UnitedHealth over the past year, the Q1 results suggest a bifurcated story: invest in Evernorth’s future while hedging against healthcare division risks. For now, the upward guidance is a bullish signal—if execution aligns with ambition, Cigna could reassert itself as a healthcare leader.