Cigna Corp. CI seems well-poised for growth on the back of its vast and diversified business profile, a solid balance sheet and a strong operating performance.
Company’s strong business profile:
Acquisition of Express Scripts: This deal made the company a one-stop shop for customers’ healthcare needs, ranging from the sale of its drugs to insurance cover, providing it with the benefits of a vertical integration. The combined company rose through the ranks in the health insurance industry, strengthening its competitive edge.
Other Buyouts: The company in the first quarter of 2019 acquired OnePath Life Insurance from ANZ Bank in New Zealand. This acquisition enabled the company to delve deeper into an existing geography with an expanded set of solutions and capabilities to create more value for its customers, intensify its continued focus on effective capital deployment and drive long-term growth. This will also grow its international operations, which have been aiding revenues over the years.
Increasing Top Line: The company’s revenues have been bumping up consistently since the last several years. The same was up 14.4% in the first six months of 2020 owing to the acquisition of Express Scripts. For 2020, the company expects consolidated adjusted revenues in the range of $154-$156 billion, representing 10-11% growth.
Improving Bottom Line: Along with top-line growth, Cigna has been able to maintain bottom-line profitability, evident from its annual earnings growth since 2009 (except in 2016 when earnings per share declined 6.4%). Its EPS witnessed a CAGR of 17% from 2014 to 2019. This operating profitability has been maintained so far by controlled medical care cost and other operating costs. In the first six months of 2020, the company’s bottom line grew 28% year over year. For 2020, consolidated adjusted income from operations is expected to be $6.8-$7 billion or $18-$18.60 per share. This suggests growth in the 9-13% band from 2019 baseline earnings. For 2021, the company targets an EPS of $20-$21.
Cigna to Divest Non-Health Unit: The company announced that it will sell its non-health insurance unit Group Life and Disability insurance business to New York Life, America’s largest mutual life insurer. The sale valued at $6.3 billion is expected to fetch $5.3 billion. This strategic move is in line with the company’s efforts to reduce its debt level, which increased after the buyout of Express Scripts last year.
Growing Membership: Cigna has been extending its membership for the past many quarters. We expect a rise in membership going forward, given the company’s diversified product portfolio, a wide agent network and superior service, which should drive enrollment in the Commercial market segments.
Favorable Cash Flows: The company has been generating positive cash flow from operations over the past several years. This reflects its healthy business operations. In the first six months of 2020, cash flow from operations ascended 22% year over year to $5.2 billion. Consistent cash flow generation enables the company to reinvest in its business, go for strategic mergers and acquisitions and return capital to its shareholders via dividend payments and share buybacks.
Year to date, the stock has lost 15.7% against its industry’s growth of 0.4%.
However, other companies in the same space, namely UnitedHealth Group Inc. UNH and Humana Inc. HUM have gained 8.3% and 14.6%, respectively, but Anthem Inc. ANTM has been down 5.2% over the same time period.
The decline in share price of Cigna makes the stock attractively priced. Its price-to-earnings ratio (forward-12 month) of 8.26 is lower than the industry average of 15.71 and is also below the 5-year median of 13.25.
The stock currently has a Zacks Rank #2 (Buy) and a Value Score of A. Back-tested results show that stocks with a Value Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 are the best investment bets. You can see the complete list of today’s Zacks #1 Rank stocks here.
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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
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