Cigna Corporation (CI - Free Report) is well-poised for growth on the back of improving membership, enhanced telehealth services suite and strong cash flows.
The healthcare provider has beat estimates in each of the trailing four quarters, the average surprise being 6.86%. Its adjusted earnings per share (EPS) grew 17% in the last five years (2014-2019).
Return on equity of 15.9% compares favorably with the 2019-end figure of 14.7%, which implies efficient utilization of shareholders’ funds.
Factors Driving Cigna
This Zacks Rank #3 (Hold) company has been providing medical and pharmacy services to one of its growth platforms – Health Services. The company intends to deploy innovative solutions to this platform at best costs, which have resulted in improved health outcomes for clients and patients. Effectively catering to client needs have also resulted in strong retention rates, which is anticipated to stay between 96-98% in the next year.
Let’s take a sneak peek into the other three growth platforms of Cigna as well — Commercial, Government and International. Notably, the commercial platform has witnessed organic customer growth for 10 consecutive years. While the government business has benefited from the acquisition of Express Scripts, the company makes constant efforts to foray further into the international markets via a strong global provider network.
Moreover, Cigna has extended contracts and teamed up with several healthcare systems for bolstering its partner networks, the most recent one being with Dignity Health. It has eliminated certain ‘out-of-pocket’ costs required for the treatment of its clients, who are severely hit by the pandemic. The healthcare provider has also been intent on enhancing its telehealth services suite, which has been witnessing a surge in demand owing to the pandemic. This is likely to position the healthcare provider well for long-term growth.
It has to be noted that revenues of this healthcare provider have been benefiting from growing membership for the past several quarters. Case in point, Cigna expects consolidated adjusted revenues in the range of $154 billion to $156 billion, higher than $153.6 billion reported in the prior year. Also, its bottom line is anticipated to witness a long-term adjusted EPS of 10-13%. In regard to growing membership, the company anticipates average annual customer growth between 10-15% in its Government Medicare Advantage plans by 2025.
Furthermore, strong cash flows have enabled Cigna to deploy capital for undertaking mergers and acquisition (M&A), and making reinvestments in businesses. It also intends to return value to shareholders via share buybacks and dividend payments. For the current year, Cigna projects cash flow from operations to be more than $7.5 billion.
Shares of Cigna have inched up 0.6% in a year compared with the industry’s rally of 19.7%.
However, we remain concerned about the company's high leverage ratio (debt-to-total capitalization), which stands at 43.5 at second-quarter end, higher than the industry average of 38.1. Nevertheless, Cigna anticipates debt to capitalization ratio to come down to less than 40% by 2020-end.
Stocks to Consider
Some better-ranked stocks in the same space are Select Medical Holdings Corporation (SEM - Free Report) , Humana Inc. (HUM - Free Report) and UnitedHealth Group Incorporated (UNH - Free Report) . While Select Medical sports a Zacks Rank #1 (Strong Buy), Humana and UnitedHealth Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Select Medical, Humana and UnitedHealth Group surpassed earnings estimates in each of the trailing four quarters by 212.61%, 11.63% and 11.64%, on average, respectively.
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