The stock of Cigna Corp. (CI - Free Report) has seen the Zacks Consensus Estimate for current-year earnings being revised 7.2% upward over the last seven days. This shows analysts’ optimism over Cigna, which recently closed the acquisition of Express Scripts, the pharmacy benefit manager, which will transform it into a diversified health services company.
The addition of Express Scripts will provide a nice diversification to the company’s existing businesses — administrative services, international operations, and disability and life insurance — which are already performing strongly.
The combination of Express Scripts’ pharmacy benefit business with Cigna’s health insurance business, will help control drug pricing cost to a large extent, one of the biggest components of soaring medical cost. Cigna anyway has a better control over its medical cost than other players in the industry. The decline in medical costs should further aid its margins.
Another distinguishing feature of the company is its international business, which provides additional diversification opportunities. Cigna’s international business, which includes India, Hong Kong, Turkey and the Middle East, among others, has overall recorded double-digit revenue and earnings growth for the past seven years. The biggest international market for Cigna is South Korea, where it has been operating for more than three decades.
Moreover, the company has a large chunk of revenues coming from the administrative services only (ASO) business, which though has lower profitability, is growing in size and provides opportunities for cross selling.
Another positive for Cigna is its strong capital position. Its cash flow from operations has been increasing consistently for the past four years and the trend continued in the first nine months of 2018. An increasing cash flow provides scope for investment in business. Though the company’s leverage levels have increased due to the purchase of Express Scripts, the same should moderate by next year as the company repays debt.
Cigna expects adjusted EPS in 2019 to gain in the double-digits range (this excludes any impact from transitioning of clients by Express Scripts specially Anthem). By the year 2021, Cigna projects adjusted EPS of $20 to $21, of which $2 to $3 will come from Express Scripts.
In a year's time, the stock has lost 8.1% compared with the industry's decline of 20.3%.
Some equally ranked stocks in the same space are UnitedHealth Group, Inc. (UNH - Free Report) , Humana Inc. (HUM - Free Report) and WellCare Health Plans, Inc. (WCG - Free Report) .
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Each of these stocks has surpassed their respective estimates in the last the four reported quarters, with an average positive surprise of 3.7%, 4.7% and 27.2%, respectively.
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