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Why Retaining Cigna (CI) Stock for Now is a Prudent Move?
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Cigna Corporation (CI - Free Report) is well poised to grow on the back of strategic acquisitions and membership growth. Its diversified business, superior operating performance plus the provision of quality products and services bode well.
Cigna — with a market cap of $71.2 billion — is a healthcare plan providing company in the United States with a wide range of products. Its operations include coordinated and point solution health services. CI provides pharmacy services, benefits management, care solutions as well as data and analytics. These services are used by health plans, employers, health care providers and government organizations.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Rising Estimates
The Zacks Consensus Estimate for Cigna’s 2021 earnings is pegged at $20.41 per share, indicating a 10.6% year-over-year rise. It has witnessed nine upward estimate revisions in the past 60 days against one in the opposite direction. The company beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 4.5%.
The consensus estimate for 2021 revenues stands at $172.4 billion, suggesting a 7.7% rise.
VGM Score
Along with a Zacks Rank #3, the company currently has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growth Drivers
Cigna has been growing its membership for many quarters now and the trend is expected to continue. Its diversified product portfolio, wide agent network and superior services are major positives. In the Government business including Medicare Advantage (MA), the company continues to drive both market and product expansion as well as in-market growth. These initiatives put Cigna on track for MA customer growth in the targeted range of 10-15% in 2021. With regard to total medical customers, the company expects growth of at least 350,000 customers in 2021. This is particularly encouraging, given that its membership was down by 472,000 in 2020 due to COVID-related declines. Also, CI focuses on strategic buyouts to boost inorganic growth.
Cigna has a strong shareholder value boosting program in place. It announced a $2-billion accelerated share repurchase in the third quarter. CI also declares special dividends from time to time. In 2021, the company anticipates deploying more than $7 billion to shareholders through share repurchases and dividend payments. It remains optimistic to pay an attractive dividend and generate a cumulative operating cash flow of $50 billion through 2025.
Strong management ensures growth in Cigna’s revenues and bottom line. The company’s revenues have been increasing consistently at a 10-year adjusted CAGR of 15%. Revenues improved 8.4% year over year for the first nine months of 2021. The consistent top-line growth has been driven by several acquisitions, the company’s superior operating performance plus the provision of quality products and services. Consistent focus on providing affordable, predictable and simple solutions to clients positions it well for the long haul. For 2021, the company anticipates consolidated adjusted revenues at a minimum of $172 billion, higher than the prior guidance of $170 billion. The estimated figure also indicates a 7.5% increase from the 2020 reported figure. It remains on track to achieve 6-8% average annual adjusted revenue growth in the long term.
CI’s earnings per share have witnessed a CAGR of 16.3% from 2015 to 2020. The first nine months of 2021 saw the metric improving 5.2% from the prior-year comparable period, courtesy of robust earnings contributions from its businesses. For 2021, the company now expects a minimum of $20.35 adjusted EPS, higher than the prior guidance of a minimum of $20.20. Nevertheless, the guidance is marginally lower than the Zacks Consensus Estimate for the same. It remains on track to achieve 10-13% average annual adjusted EPS growth on a long-term basis.
The players in the healthcare plans market have witnessed tremendous business growth this year as the overall economy is recovering fast. With the falling unemployment rate, the number of coverages being bought by employers for their workers is rising and will continue to do so. As such, the bullish outlook bodes well for these companies.
Apart from CI, other companies including UnitedHealth Group Incorporated (UNH - Free Report) , Centene Corporation (CNC - Free Report) and Anthem, Inc. are also benefiting from the rising tides.
UnitedHealth expects 2021 adjusted earnings per share to be $18.75-$18.90, indicating an increase from the 2020 level of $16.88. The figure is likely to further rise to $21.10-$21.60 per share in 2022. The overall increase in the bottom line will likely be supported by lower operating costs. UnitedHealth expects the operating cost ratio to be 14.8% for 2021, down from last year’s 16.2%. The metric might marginally decrease to 14.5% in 2022. UNH is focused on increasing value for shareholders, backed by rising cash flows. Operating cash flow for 2021 is expected to be $23 billion, suggesting a marginal increase from the 2020 level of $22.2 billion. For 2022, UnitedHealth expects operating cash flows within $23-$24 billion.
Centene expects bottom-line growth to be supported by lower expenses and gross margin improvement. Adjusted earnings per share for 2022 are expected within $5.30-$5.50, whose midpoint is higher than the 2021 estimated range of $5.05-$5.15 per share. The adjusted SG&A expense ratio for 2021 is expected within 8.2-8.6%, which is expected to decline to 7.8-8.3% in 2022. Further, Centene expects to hit adjusted earnings of $7.50-$7.75 per share for 2024, thanks to business expansion and optimization.
Anthem’s top-line improvement remains impressive, witnessing a four-year CAGR of 9% (2015-2020). We expect the favorable top-line trend to continue, given its strong business growth, membership hike and significant new contracts in the government business. ANTM expects adjusted net income for the current year to be more than $25.85 per share, higher than the previous estimate of above $25.50. It has witnessed 18 upward estimate revisions in the past 60 days and no downward movement. Anthem beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 4.7%.
Key Concerns
There are a few factors that are impeding the growth of Cigna’s stock lately.
Its high debt burden is concerning. At third quarter-end, it had cash and cash equivalents of only $3,483 million. The long-term debt was $31,609 million. This can restrict its financial flexibility. Also, increasing costs are eating into profits. Operating expenses increased 9% for the first nine months of 2021, primarily due to pharmacy and other service costs. The rising costs can hurt the bottom line. Nevertheless, we believe that a systematic and strategic plan of action will drive CI’s long-term growth.
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Why Retaining Cigna (CI) Stock for Now is a Prudent Move?
Cigna Corporation (CI - Free Report) is well poised to grow on the back of strategic acquisitions and membership growth. Its diversified business, superior operating performance plus the provision of quality products and services bode well.
Cigna — with a market cap of $71.2 billion — is a healthcare plan providing company in the United States with a wide range of products. Its operations include coordinated and point solution health services. CI provides pharmacy services, benefits management, care solutions as well as data and analytics. These services are used by health plans, employers, health care providers and government organizations.
Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Rising Estimates
The Zacks Consensus Estimate for Cigna’s 2021 earnings is pegged at $20.41 per share, indicating a 10.6% year-over-year rise. It has witnessed nine upward estimate revisions in the past 60 days against one in the opposite direction. The company beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 4.5%.
Cigna Corporation Price and EPS Surprise
Cigna Corporation price-eps-surprise | Cigna Corporation Quote
The consensus estimate for 2021 revenues stands at $172.4 billion, suggesting a 7.7% rise.
VGM Score
Along with a Zacks Rank #3, the company currently has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growth Drivers
Cigna has been growing its membership for many quarters now and the trend is expected to continue. Its diversified product portfolio, wide agent network and superior services are major positives. In the Government business including Medicare Advantage (MA), the company continues to drive both market and product expansion as well as in-market growth. These initiatives put Cigna on track for MA customer growth in the targeted range of 10-15% in 2021. With regard to total medical customers, the company expects growth of at least 350,000 customers in 2021. This is particularly encouraging, given that its membership was down by 472,000 in 2020 due to COVID-related declines. Also, CI focuses on strategic buyouts to boost inorganic growth.
Cigna has a strong shareholder value boosting program in place. It announced a $2-billion accelerated share repurchase in the third quarter. CI also declares special dividends from time to time. In 2021, the company anticipates deploying more than $7 billion to shareholders through share repurchases and dividend payments. It remains optimistic to pay an attractive dividend and generate a cumulative operating cash flow of $50 billion through 2025.
Strong management ensures growth in Cigna’s revenues and bottom line. The company’s revenues have been increasing consistently at a 10-year adjusted CAGR of 15%. Revenues improved 8.4% year over year for the first nine months of 2021. The consistent top-line growth has been driven by several acquisitions, the company’s superior operating performance plus the provision of quality products and services. Consistent focus on providing affordable, predictable and simple solutions to clients positions it well for the long haul. For 2021, the company anticipates consolidated adjusted revenues at a minimum of $172 billion, higher than the prior guidance of $170 billion. The estimated figure also indicates a 7.5% increase from the 2020 reported figure. It remains on track to achieve 6-8% average annual adjusted revenue growth in the long term.
CI’s earnings per share have witnessed a CAGR of 16.3% from 2015 to 2020. The first nine months of 2021 saw the metric improving 5.2% from the prior-year comparable period, courtesy of robust earnings contributions from its businesses. For 2021, the company now expects a minimum of $20.35 adjusted EPS, higher than the prior guidance of a minimum of $20.20. Nevertheless, the guidance is marginally lower than the Zacks Consensus Estimate for the same. It remains on track to achieve 10-13% average annual adjusted EPS growth on a long-term basis.
The players in the healthcare plans market have witnessed tremendous business growth this year as the overall economy is recovering fast. With the falling unemployment rate, the number of coverages being bought by employers for their workers is rising and will continue to do so. As such, the bullish outlook bodes well for these companies.
Apart from CI, other companies including UnitedHealth Group Incorporated (UNH - Free Report) , Centene Corporation (CNC - Free Report) and Anthem, Inc. are also benefiting from the rising tides.
UnitedHealth expects 2021 adjusted earnings per share to be $18.75-$18.90, indicating an increase from the 2020 level of $16.88. The figure is likely to further rise to $21.10-$21.60 per share in 2022. The overall increase in the bottom line will likely be supported by lower operating costs. UnitedHealth expects the operating cost ratio to be 14.8% for 2021, down from last year’s 16.2%. The metric might marginally decrease to 14.5% in 2022. UNH is focused on increasing value for shareholders, backed by rising cash flows. Operating cash flow for 2021 is expected to be $23 billion, suggesting a marginal increase from the 2020 level of $22.2 billion. For 2022, UnitedHealth expects operating cash flows within $23-$24 billion.
Centene expects bottom-line growth to be supported by lower expenses and gross margin improvement. Adjusted earnings per share for 2022 are expected within $5.30-$5.50, whose midpoint is higher than the 2021 estimated range of $5.05-$5.15 per share. The adjusted SG&A expense ratio for 2021 is expected within 8.2-8.6%, which is expected to decline to 7.8-8.3% in 2022. Further, Centene expects to hit adjusted earnings of $7.50-$7.75 per share for 2024, thanks to business expansion and optimization.
Anthem’s top-line improvement remains impressive, witnessing a four-year CAGR of 9% (2015-2020). We expect the favorable top-line trend to continue, given its strong business growth, membership hike and significant new contracts in the government business. ANTM expects adjusted net income for the current year to be more than $25.85 per share, higher than the previous estimate of above $25.50. It has witnessed 18 upward estimate revisions in the past 60 days and no downward movement. Anthem beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 4.7%.
Key Concerns
There are a few factors that are impeding the growth of Cigna’s stock lately.
Its high debt burden is concerning. At third quarter-end, it had cash and cash equivalents of only $3,483 million. The long-term debt was $31,609 million. This can restrict its financial flexibility. Also, increasing costs are eating into profits. Operating expenses increased 9% for the first nine months of 2021, primarily due to pharmacy and other service costs. The rising costs can hurt the bottom line. Nevertheless, we believe that a systematic and strategic plan of action will drive CI’s long-term growth.