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Cigna Lags Industry in '19: Can Efforts Aid Recovery in 2020?
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Cigna Corp. (CI - Free Report) had a volatile 2019, with the stock losing 17% in the first half of the year and gaining 7.6% in the second half.
Year to date, the stock has gained 7.6% compared with its industry’s growth of 18.6%. Other stocks in the same space such as UnitedHealth Group Inc. (UNH - Free Report) , Anthem Inc. and Humana Inc. (HUM - Free Report) have gained 18.7%, 16% and 29%, respectively, over the same time frame.
Though Cigna performed well in 2019 and closed the acquisition of Express Scripts, which expanded its healthcare offering, the stock seems to have taken a beating from the broader market and sector volatility.
Cigna expects to benefit from its strong business fundamentals. The company’s current valuation also seems reasonable.
The stock is trading at a forward 12-month price to earnings (P/E) of 10.99X, which is lower than its 5-year median level of 14.19X.
We believe Cigna’s stock with a VGM Score of A is poised for gains in 2020.
Factors to Drive Growth in 2020
Business Streamlining: This month, Cigna announced to sell its Group Life and Disability insurance business for $6.3 billion, which is expected to fetch $5.3 billion. This move is in line with the company’s efforts to reduce its debt level. Part of the fund will also be used for share repurchases.
This deal also gives a positive signal to investors regarding the company’s commitment to work on deleveraging its balance sheet. 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.
Acquisition of Express Scripts: Cigna acquired the largest pharmacy benefit manager Express Scripts holding for $67 billion, including $15 billion in debt. The merged company is now a one-stop shop for customers' healthcare needs, ranging from sale of drugs to insurance cover.
It would benefit consumers by bringing together medical care and pharmacy benefits under one roof to improve treatment and lower costs. The combined company has improved its ranking in the health insurance industry, strengthening its competitive position.
Cigna expects the deal to increase earnings per share from $18 to $20-$21 in 2021. The merged company will generate free cash flow of at least $6 billion in 2021.
International Operations Provide Diversification: In the first quarter of 2019, Cigna acquired OnePath Life Insurance from ANZ Bank in New Zealand. This acquisition will enable Cigna to delve deeper into an existing geography, with an expanded set of solutions and capabilities to create more value for its customers and exemplify its continued focus on effective capital deployment to drive long-term growth.
This will also expand its international operations, which have been boosting revenues over the years. Also, the company's broadening international business provides proliferation and shields against stiff regulations governing its businesses in the United States.
We believe that the aforementioned factors will help the stock to gain momentum in the New Year.
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Image: Bigstock
Cigna Lags Industry in '19: Can Efforts Aid Recovery in 2020?
Cigna Corp. (CI - Free Report) had a volatile 2019, with the stock losing 17% in the first half of the year and gaining 7.6% in the second half.
Year to date, the stock has gained 7.6% compared with its industry’s growth of 18.6%. Other stocks in the same space such as UnitedHealth Group Inc. (UNH - Free Report) , Anthem Inc. and Humana Inc. (HUM - Free Report) have gained 18.7%, 16% and 29%, respectively, over the same time frame.
Though Cigna performed well in 2019 and closed the acquisition of Express Scripts, which expanded its healthcare offering, the stock seems to have taken a beating from the broader market and sector volatility.
Cigna expects to benefit from its strong business fundamentals. The company’s current valuation also seems reasonable.
The stock is trading at a forward 12-month price to earnings (P/E) of 10.99X, which is lower than its 5-year median level of 14.19X.
We believe Cigna’s stock with a VGM Score of A is poised for gains in 2020.
Factors to Drive Growth in 2020
Business Streamlining: This month, Cigna announced to sell its Group Life and Disability insurance business for $6.3 billion, which is expected to fetch $5.3 billion. This move is in line with the company’s efforts to reduce its debt level. Part of the fund will also be used for share repurchases.
This deal also gives a positive signal to investors regarding the company’s commitment to work on deleveraging its balance sheet. 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.
Acquisition of Express Scripts: Cigna acquired the largest pharmacy benefit manager Express Scripts holding for $67 billion, including $15 billion in debt. The merged company is now a one-stop shop for customers' healthcare needs, ranging from sale of drugs to insurance cover.
It would benefit consumers by bringing together medical care and pharmacy benefits under one roof to improve treatment and lower costs. The combined company has improved its ranking in the health insurance industry, strengthening its competitive position.
Cigna expects the deal to increase earnings per share from $18 to $20-$21 in 2021. The merged company will generate free cash flow of at least $6 billion in 2021.
International Operations Provide Diversification: In the first quarter of 2019, Cigna acquired OnePath Life Insurance from ANZ Bank in New Zealand. This acquisition will enable Cigna to delve deeper into an existing geography, with an expanded set of solutions and capabilities to create more value for its customers and exemplify its continued focus on effective capital deployment to drive long-term growth.
This will also expand its international operations, which have been boosting revenues over the years. Also, the company's broadening international business provides proliferation and shields against stiff regulations governing its businesses in the United States.
We believe that the aforementioned factors will help the stock to gain momentum in the New Year.
Cigna carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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