Cigna (CI) 2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-26) + Yahoo Finance

Auditor: PricewaterhouseCoopers LLP — Clean opinion (served since 1983)

Fiscal Year: 2025 (ended December 31, 2025)

One-line verdict: Cigna's 2025 financials tell a story of a PBM-dominant health company whose top line grew 11% to $274.9B while operating cash flow actually fell from $10.4B to $9.6B, and where $73.5B of goodwill-plus-intangibles now equals 176% of shareholders' equity. The engine flagged three hard fails: revenue grew 12.5% while CFFO declined -7.4%, goodwill+intangibles stand at 176% of equity, and cash of $8.6B covers only 27% of $31.5B in debt. Management's adjusted income of $8.0B is healthy, but the 10-K explicitly notes that IBNR reserve estimation in the Cigna Healthcare segment is the critical audit matter, and the Evernorth PBM business is operating inside an FTC regulatory crosshair. The F grade reflects mechanical engine failures, not accounting fraud — PwC gave a clean opinion.

Revenue: $274.9B — PBM Is Now 79% of the Business

From the 10-K Consolidated Statements of Income:

Pharmacy revenues — the Express Scripts/Evernorth PBM franchise — grew 17% to $216.7B and now represent 79% of total revenue. Premiums (the insurance business) fell 12% to $40.3B. The 10-K's segment table shows the reason: Cigna Healthcare adjusted revenues fell from $52.9B to $47.2B (-11%) while Evernorth Health Services grew from $202.2B to $235.0B (+16%).

The 10-K explains the Premium decline: "On March 19, 2025, the Company completed the sale of our Medicare Advantage, Medicare Individual Stand-Alone Prescription Drug Plans, Medicare and Other Supplemental Benefits, and CareAllies businesses to Health Care Service Corporation (HCSC, and such transaction, the HCSC transaction). The final purchase price and total cash proceeds collected in 2025 were $4.9 billion." Cigna is now essentially a PBM that also runs a commercial health plan.

The Cash Flow Divergence: Revenue +11%, OCF -7.4%

The screening engine flagged this as a FAIL on A3: "Revenue grew 12.5% but CFFO declined -7.4%." Reading the 10-K cash flow statement reveals where the cash went:

The 2024 CFFO was flattered by an unusual $8.8B swing in pharmacy costs payable; in 2025, that swing was only $1.9B. Adding back the $4.6B AR build and $0.6B inventory build, the underlying business still generates cash — but the Y/Y decline tells you 2024's OCF was a high-water mark driven by working-capital timing, not a recurring run rate.

CFFO/NI for 2025 is 1.61 — healthy. The issue is trajectory, not level. The engine's C1 check passes; A3 fails because the direction of change is wrong.

Balance Sheet: $73.5B in Goodwill+Intangibles vs $41.7B in Equity

From the Consolidated Balance Sheets as of December 31, 2025:

The engine flags D1 FAIL: "Goodwill+Intangibles $73.5B = 176% of equity." And C4 FAIL: "Cash $8.6B covers only 27% of debt $31.5B."

Context: Cigna is a health insurer/PBM where the regulated subsidiaries hold a large portion of their own statutory reserves separately. The parent-only balance sheet in the filing shows Investments in subsidiaries of $61.4B — the real value sits inside the operating entities, not at the holdco. But the consolidated goodwill of $44.9B still represents mostly the Express Scripts acquisition (originally closed December 2018 for ~$54B), and the $28.6B in intangibles amortizes at ~$1.7B/year — a recurring charge against GAAP earnings.

Profitability: The GAAP-to-Adjusted Gap

The GAAP vs adjusted gap in 2025 was $1.04B pre-tax in special items plus $1.7B in intangible amortization. 2025 special items from the 10-K:

2024's bigger gap ($2.7B net investment losses hitting GAAP but excluded from adjusted) explains why 2024 GAAP EPS looked artificially low at $12.12 vs the $27.33 adjusted figure. The company uses adjusted income heavily — note that adjusted income exceeds GAAP net income in every year shown.

Medical Care Ratio: The IBNR Judgment Call

PwC identified IBNR (Incurred But Not Reported) valuation as the Critical Audit Matter:

"The total of incurred but not reported (IBNR) liabilities plus expected development on reported claims and reported claims in process for the Cigna Healthcare segment as of December 31, 2025 was $4.0 billion. Management estimates the liability for claims incurred in each month by applying the current estimates of completion factors to the current paid claims data."

PwC flagged this because: "a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management's significant assumptions related to completion factors and medical cost trend; and...the audit effort involved the use of professionals with specialized skill and knowledge."

This is mechanically how health insurers can shift reported profits between periods. It's not an accusation — PwC's procedures specifically test this — but it's the reason the 10-K's Risk Factors warn: "If we are not able to accurately and promptly anticipate and detect medical cost trends, our ability to take timely corrective actions to limit future costs and reflect our current benefit cost experience in our pricing process may be limited."

The 10-K's Executive Overview discloses medical customers fell from 19.1M to 18.1M (-5%), consistent with the Medicare Advantage sale.

Cash Flow and Capital Returns

Cigna repurchased $3.6B of stock in 2025 and paid $1.6B in dividends, for $5.2B in capital returns against $8.4B in FCF. The 2024 $7.0B buyback was a high-water outlier. Debt rose roughly in line with repayments, so net debt has been essentially flat — the HCSC sale proceeds ($4.9B) mostly financed the 2025 buybacks and capex.

2024 Investment Loss: A One-Time Hit, Now Passed

The 10-K shows 2024 net investment losses of $2.7B (pre-tax), which crushed 2024 GAAP net income from an expected ~$6B range down to $3.8B. In 2025 that line normalized to just $24M. The 10-K does not detail the specific 2024 investments that were written down, but it was a singular event and not recurring into 2025.

The 18-Point Screening

Revenue Quality

Expense Quality

Cash Flow Quality

Balance Sheet

Acquisition Risk

Beneish M-Score

Additional Scores: F-Score 1.85, Z-Score 1.76 (grey zone — reflects insurer balance sheet with large float liabilities, not a distress signal for a regulated insurer).

Key Risks from the 10-K

1. PBM Regulatory Risk (FTC) — The 10-K states: "In September 2024, the FTC filed an administrative complaint against Express Scripts and two other PBMs, among others, for allegedly engaging in anticompetitive and unfair rebate practices related to insulin drug pricing." The 10-K then notes: "In February 2026, we reached a final settlement with the FTC, which resolved all FTC matters and litigation without a monetary penalty, finding of fault or admission of liability." Separately: "the FTC has released two staff reports on PBMs and the accessibility and affordability of prescription drugs." This matters because PBM revenue is now 79% of total revenue.

2. Inflation Reduction Act Drug Price Negotiation — From Item 1A: "laws such as the Inflation Reduction Act have granted CMS the ability to negotiate drug prices for high-cost Medicare Part D and Part B drugs, and other federal and state legislative proposals and executive actions can lead to residual effects as drug companies adjust pricing strategies for broader marketplaces, impacting which medications are prioritized." As a PBM, Cigna's economics depend on rebate spreads that are being legislated narrower.

3. IBNR Reserve Estimation — PwC's Critical Audit Matter. $4.0B of IBNR reserves in the Cigna Healthcare segment depend on "completion factors" and "medical cost trend" assumptions. Medical customers dropped from 19.1M to 18.1M in 2025 following the HCSC sale, which the 10-K notes can affect completion factor development.

4. Client Concentration and Contract Renegotiation — The 10-K states: "our Express Scripts client contracts generally have three-year terms and may be subject to periodic renegotiation of pricing terms based on market factors" and "Clients can easily move between our competitors and us. Our clients are well-informed and typically have knowledgeable consultants."

5. Provider Rate Pressure — Item 1A: "In any particular market, physicians, hospitals and health service providers may enter into exclusive arrangements with competitors or simply refuse to contract with us, demand higher payments, or take other actions that could result in higher medical costs."

6. Cyber / Information Security — The 10-K's cybersecurity risk factor notes: "Any failure or disruption of our performance of, or our ability to perform, key business functions, including through unavailability or cyberattack of our information technology systems or those of third parties (including cloud service providers), could cause slower response times, decreased levels" of service.

7. Government Investigation Exposure — Item 1A: "We are frequently the subject of regulatory market conduct and other reviews, audits and investigations by state insurance, health and welfare and pharmacy departments; attorneys general; the DOJ; the FTC; CMS; the DOL; the HHS-OIG; and comparable authorities in foreign jurisdictions."

Summary

Grade: F. Clean auditor opinion, but three mechanical fails on the 18-point screen.

The F grade comes from three engine failures: (1) revenue grew 11% while operating cash flow fell 7%, (2) $73.5B of goodwill and intangibles equal 176% of equity, and (3) cash of $8.6B covers only 27% of $31.5B in debt. None of these is evidence of fraud. PwC issued a clean opinion with a single Critical Audit Matter around IBNR reserve estimation — the exact area where insurance companies can shift reported profits between periods, but also the exact area PwC audited with specialized actuarial procedures.

The underlying business is straightforward: Evernorth (the Express Scripts PBM) is now 79% of revenue at $216.7B and grew 17%. Cigna Healthcare (the commercial insurance segment) shrank to $47.2B after selling Medicare Advantage to HCSC for $4.9B. Adjusted operating income ticked up to $8.0B (+4%). Medical customers fell from 19.1M to 18.1M, entirely explained by the divestiture.

What investors need to understand: (1) The 2024 CFFO of $10.4B was flattered by an $8.8B swing in pharmacy costs payable timing; 2025's $9.6B is closer to run-rate. (2) The PBM is the whole business now, and the FTC's 2024 administrative complaint — settled February 2026 without penalty — was a warning shot at an industry that faces ongoing pressure from the IRA, from state legislatures, and from CMS. (3) The $73.5B in goodwill and intangibles is almost entirely the Express Scripts acquisition from December 2018; impairment would require the PBM franchise to lose significant economic value, which hasn't happened and is not suggested by any of the data.

The engine flags what it flags: direction of cash flow change, leverage coverage, and intangibles to equity. These are real, but they are insurer/PBM-industry characteristics rather than unique Cigna problems. The structural question is whether PBM rebate economics survive the next round of federal legislation.

**Disclaimer**: This report is based on Cigna's 2025 10-K (SEC EDGAR) and public financial data. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags. Grade F means major red flags were detected that require serious investigation before proceeding.