Cigna Corp. CI seems to be poised for growth given its vast and diversified business profile, a solid balance sheet and strong operating performance. The company also kept intact its 2020 earnings guidance even in the face of COVID-19.
Let’s delve deeper into the factors shaping the growth story of this Zacks Rank #2 (Buy) company, which also flaunts a VGM Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.
Acquisition of Express Scripts (NASDAQ:ESRX): Cigna has 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 aids consumers by bringing together medical care and pharmacy benefits under one roof to improve treatments and lower costs. The combined company will be able to rise in rank in the health insurance industry, strengthening its competitive position. Cigna expects the deal to increase earnings per share from $18 to the range of $20-$21 in 2021. The combined company will generate free cash flow of at least $6 billion in 2021.
Increase in Top Line: The company’s revenues have been increasing consistently since the last several years. The same was up 15% in the first quarter of 2020 owing to the acquisition of Express Scripts. The consistent top-line growth has been driven by a number of acquisitions, the company’s superior operating performance plus provision of quality products and services. For 2020, the company expects consolidated adjusted revenues in the range of $154 million to $156 billion, indicating growth of 10% to 11%.
Impressive Bottom Line: Along with top-line growth, Cigna has been able to maintain bottom-line profitability, evident from annual earnings growth since 2009 (with the exceptional year being 2016 when earnings per share declined 6.4%). This operating profitability has been maintained by controlling medical care cost and other operating costs. In the first quarter of 2020, the company’s bottom line grew 20% year over year. For 2020, consolidated adjusted income from operations is expected to be $6.8 billion to $7 billion or $18 to $18.60 per share. This suggests growth in the range of 9% to 13% over 2019 baseline earnings. For 2021, the company targets EPS of $20 to $21.
Business Streamlining: The company has announced sale of its non-health insurance unit, Group Life and Disability insurance business to New York Life, America’s largest mutual life insurer. 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 the 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.
High Return on Equity: The ratio, which measures the profit generated by the company for its shareholders, stands at 15.1% compared with its industry average of 8.12%. This reflects the company’s superior operating profitability.
In the past three months, the stock has gained 7.5% compared with its industry’s growth of 19.6%.
Other stocks worth considering in the healthcare industry are Centene (NYSE:CNC) Corp. CNC, Molina Healthcare (NYSE:MOH) Inc. MOH and Teladoc (NYSE:TDOC) Health, Inc. TDOC. Each of these stock carries the same Zacks Rank as Cigna.
Teladoc and Centene surpassed estimates in two of the past four reported quarters and missed in two.
Molina Healthcare beat estimates in three of the past four reported quarters and missed in one.
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Cigna Corporation (NYSE:CI): Free Stock Analysis Report
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