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Cigna to Divest Non-Health Unit, Streamline Operations

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Cigna Corp. CI has announced to sell its non-health insurance unit, Group Life and Disability insurance business to New York Life, America’s largest mutual life insurer.

Cigna’s to-be-divested business sells life, accident and disability-income insurance to employers for their employees. The sale valued at $6.3 billion is expected to fetch $5.3 billion and is likely to close in the third quarter of 2020.

This move is in line with the company’s efforts to reduce its debt level, which increased after the buyout of Express Scripts for $54 billion, last year. The deal required Cigna to borrow funds.

Part of the fund from sale proceeds will be used for buying back shares.The divestiture will have no material impact on Cigna 2020 earnings but will add slightly to 2021 earnings.

This deal also gives a positive signal to investors regarding the company’s commitment to work on deleveraging its balance sheet. Its near-term focus is on accelerated debt repayment. Cigna has already deployed $3.7 billion through the end of third quarter to repay debt. It is also on track to return its debt-to-capitalization ratio to upper 30’s by the end of 2020. The company’s current debt-to-capital ratio is 46.4% compared with the industry’s 29.4%. Debt-to-capital ratio has, however, come down from 50.9% as of Dec 31, 2018.

Also, Cigna’s priority is to focus on its core business related to healthcare, which expanded further after the purchase of Express Scripts. The company desires to strengthen its Medicare business, which presents a huge business opportunity on the back of its ever-increasing demand from the baby boomer population.

Following the news of this unit sale, rating agency A.M. Best undertook a rating check on Cigna, and kept unchanged its long-term issuer credit rating (Long-Term ICR) of "bbb" and the long- and short-term issue ratings.

We view this deal to be a net positive for Cigna. The company’s niche base in the healthcare industry with the recent buyout of Express Scripts also seems favorable in the long run. Its broadening international business provides proliferation and shields against stiff regulations governing its businesses in the United States.

Cigna’s stock has rallied 23.3% in the past six months compared with its industry’s growth of 2.5%.

The stock has witnessed an upward earnings estimate revision for 2019 over the past 30 days. For the to-be-reported quarter, the company’s earnings are expected to increase 70.7% on revenue growth of 156.7%.

Cigna carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in healthcare space are Amedisys, Inc. AMED, Select Medical Holdings Corporation (SEM - Free Report) and WellCare Health Plans, Inc. WCG.

While Amedisys and Select Medical Holdings sport a Zacks Rank #1 (Strong Buy), WellCare Health Plans carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Amedisys, Select Medical and WellCare have surpassed estimates in the last quarter by 27.8%, 50% and 39.95%, respectively.

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