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Cigna Shares (CI) Up 38% This Year: Is Further Upside Left?

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Cigna Corp. (CI - Free Report) is on a stellar run. Continued strong growth in membership, superior performance of business units along with solid capital position, and an upbeat outlook with strong fundamentals have propelled the stock.

The same is reflected in the company’s share price, which has gained a whopping 38% year to date, significantly outdoing the mere 1.4% growth for the industry it belongs to.

Cigna with a Zacks Rank #3 (Hold) looks all the more impressive at a time when the healthcare sector is grappling with stringent regulations and remains under considerable regulatory uncertainty. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The returns compare favorably with gains of 23.5%, 31%, 34% for UnitedHealth Group Inc. (UNH - Free Report) , Aetna Inc. (AET - Free Report) and Anthem Inc. (ANTM - Free Report) , respectively.  

So what led the momentum in the stock?    

The stock is gaining from the company’s strong performance. Its Global Supplement business has been  growing for the past many years, a trend which continued through the first half of 2017. For 2017, the company expects adjusted income from operations of $310 million to $330 million (up from the previous guidance of $295 million to $315 million), which translates into a year-over-year growth rate of nearly 9% (calculated at the midpoint).

We expect the segment to grow on the back of its leading innovations, direct-to-consumer distribution capabilities, and easy-to-understand, affordable products that are designed to fill in gaps in coverage and locally licensed and strongly managed talent.

Also, its Seniors market — Medicare Advantage (MA), MA Part D, and Medicaid businesses — is poised for strong growth. Cigna forayed into the Medicare Advantage market (where it was virtually nonexistent) by acquiring HealthSpring Inc. We expect high single-digit revenue growth from this line of business in the long term.

Membership growth, which has been steady for quarters now, has been seen this year too. We expect a rise in membership going forward, given its diversified product portfolio, a wide agent network and superior service.  For 2017, the company expects global medical customers to grow from 500,000, to 600,000 lives over year-end 2016, reflecting the strong growth experienced by the company across its Commercial market segments.

Its strong capital position is impressive. The company’s cash flow from operations has been increasing consistently for the last three years and the trend continued in the first half of 2017. Its disciplined capital management strategy involves investments in its business portfolio, strategic mergers and acquisitions, and share repurchases.

Above all, the recent guidance raise by the company cements our confidence in the stock. Cigna expects adjusted income from operations to grow 19% to 23% (versus the previous outlook of 12% to 18%). Revenue guidance of $41.1 billion translates into a year-over-year increase of 3.5%. Cigna’s earnings per share projection of $9.75 to $10.05 (versus the previous outlook of $9.35-$9.85) hints at growth of 37.7% over 2016 (calculated at the midpoint of the guidance).

Given the bunch of positives, we expect momentum in the shares of Cigna to continue in the coming quarters.

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