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Here's Why You Should Hold Cigna (CI) Stock in Your Portfolio
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Cigna Corporation (CI - Free Report) has been gaining momentum from improving revenues, courtesy of its four growth platforms. A solid financial standing and prudent capital deployment measures are other notable tailwinds.
The company has an impressive earnings surprise history. It has beat estimates in each of the trailing four quarters, the average surprise being 6.83%.
Cigna’s trailing 12-month return on equity (ROE) of 15.4% is higher than 2019-end figure of 14.7%. This highlights the company’s tactical utilization of shareholders’ funds.
The Zacks Consensus Estimate for 2020 earnings per share indicates year-over-year improvement of 9%. The company has an impressive Value Score of A, which reflects an attractive valuation of the stock.
What’s Driving the Stock?
This Zacks Rank #3 (Hold) health care provider has undertaken a plethora of initiatives to collaborate or extend contracts with several cost-effective healthcare systems in a bid to provide uninterrupted healthcare services across several regions of the United States. These initiatives intend to bring about improved health outcomes and lead to a reduction in health care costs. This, in turn, has been driving the company’s bottom line, which has witnessed a 5-year CAGR of 17%. While the company targets to achieve adjusted earnings per share (EPS) in the range of $20-21 for the next year, Cigna anticipates the same to improve between 10% and 13% in the long term.
Moreover, the company remains well-poised for growth on the back of its four platforms — Evernorth, which was previously known as Health Services, U.S. Commercial, U.S. Government and International. Launched in September of this year, the Evernorth segment is equipped to provide enhanced health solutions for catering to varied needs of health plans, employers and government organizations. The segment also caters to those who do not have Cigna medical insurance. The U.S. Commercial business has been able to reduce medical costs more effectively than its peers. This medical cost trend has not only witnessed organic customer growth for 10 straight years but also saw robust client retention rates.
Furthermore, the U.S. Government business is well-poised to gain momentum from the health woes induced by the COVID-19 outbreak and an aging population across the country. These factors have spurred the demand for Medicare Advantage (MA) plans. Case in point, this October, Cigna unveiled an array of health plans with enhanced features for 2021, which will expand its presence by 22% in the United States and provide improved health outcomes. Other health care providers, such as Centene Corporation (CNC - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and Humana Inc. (HUM - Free Report) , have also rolled out their 2021 Medicare Advantage plans on the back of growing potential of the Medicare business.
It should be mentioned that more than 85% of the company’s MA customers are in value-based arrangements. Also, the membership of this business is likely to witness improvement as evident from the company’s expectation of 10% to 15% average annual customer growth through 2025. The company has an established worldwide presence courtesy of a global provider network, which continues to buoy its International business.
These four growth platforms have been driving the company’s revenues as evident from a 10-year CAGR of 21.9%. The trend is likely to continue in the days ahead. Following solid third-quarter 2020 results, Cigna now estimates 2020 adjusted revenues to be around $158 billion, which is pegged higher than the prior expectation of $154-156 billion.
Additionally, Cigna has a solid cash balance as of Sep 30, 2020, which increased 15.7% from 2019-end level. The company has been making constant efforts to reduce debt levels. Case in point, the decision to divest its Group Life and Disability insurance business last year. This deal is likely to close in fourth-quarter 2020. As of Sep 30, 2020, the company’s total debt to total capital stands at 42.8%, which slid from 45.2% from 2019-end. The company intends to bring down the same to less than 40% in the near term.
Notably, Cigna has showcased sufficient cash generation abilities, which has facilitated the company to reinvest in its business, undertake strategic mergers and acquisitions, and return capital to its shareholders through share buybacks and dividend payments. The company expects cash flow from operations to exceed $8 billion for the next year.
However, we remain concerned about the elevated expenses, which are likely to remain high as the company continues to invest in growth and innovation. Nevertheless, we believe that the company’s strong fundamentals are likely to drive shares in the days ahead.
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Here's Why You Should Hold Cigna (CI) Stock in Your Portfolio
Cigna Corporation (CI - Free Report) has been gaining momentum from improving revenues, courtesy of its four growth platforms. A solid financial standing and prudent capital deployment measures are other notable tailwinds.
The company has an impressive earnings surprise history. It has beat estimates in each of the trailing four quarters, the average surprise being 6.83%.
Cigna’s trailing 12-month return on equity (ROE) of 15.4% is higher than 2019-end figure of 14.7%. This highlights the company’s tactical utilization of shareholders’ funds.
The Zacks Consensus Estimate for 2020 earnings per share indicates year-over-year improvement of 9%. The company has an impressive Value Score of A, which reflects an attractive valuation of the stock.
What’s Driving the Stock?
This Zacks Rank #3 (Hold) health care provider has undertaken a plethora of initiatives to collaborate or extend contracts with several cost-effective healthcare systems in a bid to provide uninterrupted healthcare services across several regions of the United States. These initiatives intend to bring about improved health outcomes and lead to a reduction in health care costs. This, in turn, has been driving the company’s bottom line, which has witnessed a 5-year CAGR of 17%. While the company targets to achieve adjusted earnings per share (EPS) in the range of $20-21 for the next year, Cigna anticipates the same to improve between 10% and 13% in the long term.
Moreover, the company remains well-poised for growth on the back of its four platforms — Evernorth, which was previously known as Health Services, U.S. Commercial, U.S. Government and International. Launched in September of this year, the Evernorth segment is equipped to provide enhanced health solutions for catering to varied needs of health plans, employers and government organizations. The segment also caters to those who do not have Cigna medical insurance. The U.S. Commercial business has been able to reduce medical costs more effectively than its peers. This medical cost trend has not only witnessed organic customer growth for 10 straight years but also saw robust client retention rates.
Furthermore, the U.S. Government business is well-poised to gain momentum from the health woes induced by the COVID-19 outbreak and an aging population across the country. These factors have spurred the demand for Medicare Advantage (MA) plans. Case in point, this October, Cigna unveiled an array of health plans with enhanced features for 2021, which will expand its presence by 22% in the United States and provide improved health outcomes. Other health care providers, such as Centene Corporation (CNC - Free Report) , UnitedHealth Group Incorporated (UNH - Free Report) and Humana Inc. (HUM - Free Report) , have also rolled out their 2021 Medicare Advantage plans on the back of growing potential of the Medicare business.
It should be mentioned that more than 85% of the company’s MA customers are in value-based arrangements. Also, the membership of this business is likely to witness improvement as evident from the company’s expectation of 10% to 15% average annual customer growth through 2025. The company has an established worldwide presence courtesy of a global provider network, which continues to buoy its International business.
These four growth platforms have been driving the company’s revenues as evident from a 10-year CAGR of 21.9%. The trend is likely to continue in the days ahead. Following solid third-quarter 2020 results, Cigna now estimates 2020 adjusted revenues to be around $158 billion, which is pegged higher than the prior expectation of $154-156 billion.
Shares of this Zacks Rank #3 (Hold) health care provider have gained 4.2% in a year compared with the industry’s rally of 5.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Additionally, Cigna has a solid cash balance as of Sep 30, 2020, which increased 15.7% from 2019-end level. The company has been making constant efforts to reduce debt levels. Case in point, the decision to divest its Group Life and Disability insurance business last year. This deal is likely to close in fourth-quarter 2020. As of Sep 30, 2020, the company’s total debt to total capital stands at 42.8%, which slid from 45.2% from 2019-end. The company intends to bring down the same to less than 40% in the near term.
Notably, Cigna has showcased sufficient cash generation abilities, which has facilitated the company to reinvest in its business, undertake strategic mergers and acquisitions, and return capital to its shareholders through share buybacks and dividend payments. The company expects cash flow from operations to exceed $8 billion for the next year.
However, we remain concerned about the elevated expenses, which are likely to remain high as the company continues to invest in growth and innovation. Nevertheless, we believe that the company’s strong fundamentals are likely to drive shares in the days ahead.
Legal Marijuana: An Investor’s Dream
Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.
Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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