Cigna Corporation (NYSE:CI)’s CI divested its group life and disability insurance business to New York Life. The divestiture of this non-health unit of Cigna was announced in December 2019.
The transaction, valued at $6.3 billion, seems to be a win-win situation for both New York Life and Cigna.
The divestiture will help Cigna intensify focus on its core business – healthcare. A plethora of initiatives undertaken by Cigna, ranging from introduction of the Evernorth segment for accelerated offering of innovative solutions to unveiling 2021 plans for expanding presence across the Medicare Advantage (MA) market across the United States, is testament to the same.
On the other hand, addition of Cigna’s business to New York Life, which boasts of being the leading American mutual life insurer, has established it as one of the top five insurers offering group disability, accident, and disability insurance offerings. The business, which has been renamed New York Life Group Benefit Solutions, is backed by specialized underwriting and risk management capabilities that are likely to add scalability to New York Life’s business. With improved group benefits solutions, the buyout will further help the company to provide financial relief to their clients and employees.
This Zacks Rank #3 (Hold) healthcare provider has been transforming its business model from traditional fee-for-service to value-based care delivery for more than a decade, based on which it has witnessed solid customer growth and strong client retention rates. More than 85% of the company’s MA customers are in value-based arrangements. Moreover, it has extended contracts and teamed up with several healthcare systems for improved value-based service offerings.
Coming back, with the proceeds from the divestiture, the company intends to make debt repayments and buy back shares as previously planned. The healthcare provider has been actively repaying debt as higher debt levels not only induce rise in interest expenses but also put pressure on ability to make interest payments. Evidently, it repaid $6.9 billion of long-term debt during the first nine months of 2020.
Notably, the company’s debt had witnessed a significant uptick following Cigna’s acquisition of Express Scrips in 2018. As of Sep 30, 2020, the company’s total debt to total capital stands at 42.8%, which has declined from 2019 end but still remains higher than the industry’s figure of 37.5%. Notably, the company intends to bring down the same to less than 40% in the near term.
Shares of Cigna have gained 10% in the past six months compared with the industry’s rally of 13%. Nevertheless, the company’s prudent initiatives are likely to drive shares in the days ahead.
Price Performance of Other Stocks in the Same Space
Other stocks in the same space, namely Anthem, Inc. ANTM, Molina Healthcare (NYSE:MOH), Inc. MOH and Magellan Health (NASDAQ:MGLN), Inc. MGLN, have fared well in the past six months. While Anthem has gained 19.4% in the past six months, Molina Healthcare and Magellan Health have advanced 16.3% and 13.1%, respectively, in the same time frame.
All the three stocks carry the same Zacks Rank as of Cigna. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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