Estimates for Cigna Corporation (CI - Free Report) have been revised upward over the past 30 days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2018 and 2019 earnings move 3.2% and 5.3% north, respectively, over the same time frame.
Shares of this Zacks Rank #1 (Strong Buy) company have gained 4.5% against its industry’s decline of 14.5%.
The company also carries an impressive Value Score of B. Our research shows that stocks with a solid Value Style Score of A or B when combined with a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investment space.
The mid-term election remains positive for the Health Maintenance Organization (HMO) industry and in turn, would benefit all the players including Cigna. The repeal of the Affordable Care Act (ACA) is not likely to happen anytime soon and the overall scenario bodes well for the HMOs as membership growth in Medicare and Medicaid should drive their top line.
Now, let’s focus on some important factors that make the company an investor favorite.
Robust Third-Quarter Results: Cigna reported third-quarter 2018 earnings per share of $3.84, beating the Zacks Consensus Estimate by 11.3%. The metric also surged by an impressive 36% year over year, driven by solid segmental performances across Global Health Care, Global Supplemental Benefits plus Group Disability and Life businesses. Moreover, it generated revenues of $11.44 billion, surpassing the Zacks Consensus Estimate by 2%. The top line also improved 9% year over year, led by robust business growth in Global Healthcare and Global Supplemental Benefits segments.
Stellar Earnings Surprise History: The company boasts an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four reported quarters, the average beat being 13.46%. Further, this upside speaks volumes for the company’s operational excellence.
Strong Performance of Global Health Care Segment: This segment contributes a lion’s share to the company’s total revenue base. The segment witnessed a CAGR of 6% for revenues from 2014 to 2017. The metric rose 11% in the first nine months of 2018, driven by Commercial customer growth and expansion of specialty relationships as well as premium increases, consistent with the underlying cost trends. The company is expected to see commendable revenue growth going forward, which in turn, should boost its top line.
Raised Guidance: Following sturdy results in the first nine months of 2018, Cigna lifted its earnings outlook. It now expects consolidated adjusted income from operations for 2018 in the range of around $3.49-$3.54 billion or $14.20-$14.40 per share, reflecting an increase of 50-60 cents per share over the previous expectation and representing per share growth of 36-38% over 2017-level. Total revenues are expected to grow approximately 8.5% compared with the earlier projection of approximately 8%. This upbeat view should instill investors’ confidence in the stock.
Increasing Membership: The company has witnessed higher membership for the past many years. For 2018, Cigna forecasts global medical customers’ growth in the band of 400,000-500,000. We believe that the company’s solid fundamentals along with its diversified product portfolio would attract more members going forward.
Firm Capital Position: Cigna’s cash flow from operations has been increasing for the past four years and the trend continued into the first nine months of 2018. This momentum was constantly sustained by its disciplined capital management strategy consisting of prudent mergers, acquisitions and other investments. The company is generating high margins and is capital efficient, leading to organic growth and significant free cash flow.
Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $14.31, representing a year-over-year increase of 36.81% on 10.4% higher revenues of $45.68 billion.
For 2019, the Zacks Consensus Estimate for earnings per share stands at $16.55 on $48.56 billion revenues, translating into a respective 15.64% and 6.29% year-over-year rise.
Further, the company’s estimated long-term (five years) EPS growth rate of 12.4%, which is greater than the industry’s earnings growth rate of 8.1%, promises rewards for investors.
Other Stocks to Consider
Investors interested in the insurance-multiline industry might also take a look at a few other top-ranked stocks like MGIC Investment Corporation (MTG - Free Report) , Old Republic International Corporation (ORI - Free Report) and MetLife, Inc. (MET - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MGIC Investment Corporation offers private mortgage insurance and ancillary services to lenders and government sponsored entities in the United States. It came up with average four-quarter positive surprise of 34.32%.
Old Republic engages in the insurance underwriting and related services business, primarily in the United States and Canada. The company managed to pull off average trailing four-quarter earnings surprise of 15.66%.
MetLife provides solutions to insurance, annuities, employee benefits and asset management businesses. It delivered average four-quarter beat of 9.67%.
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