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Cigna (CI) Rides on Acquisitions, Strong Capital Deployment

By Zacks Investment ResearchStock MarketsMay 26, 2021 09:20PM ET
Cigna (CI) Rides on Acquisitions, Strong Capital Deployment
By Zacks Investment Research   |  May 26, 2021 09:20PM ET
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When we look at the managed care space, one company that is sure to catch our eye is Cigna Corp. CI. The company with a $90-billion market capitalization retained its track record of revenue growth for the past 11 straight years. Its bottom line has also impressed with increases over the past several years sans 2016, which saw a decline of 6.4%.

Cigna transformed itself into a multifaceted health care company from being a health insurer by acquiring companies and building itself vertically as well as horizontally.

Plenty of Momentum

Cigna expanded vertically with the acquisition of the pharmacy benefit manager Express Scripts (NASDAQ:ESRX) in 2018. The deal has proved its worth thus far, given its accretion to revenues. It also put the company in direct competition with CVS Health Corp (NYSE:CVS). CVS and UnitedHealth Group Inc. UNH as both these entities have pharmacy benefit management units for negotiating deals on prescription drugs.

Cigna closely follows the industry trends and walks along the same route. The COVID-19 brought the telehealth services to the fore and to tap this segment of the healthcare market, the company is foraying into telehealth business. To this end, it agreed to acquire MdLive, a deal, which is going to close soon and boost Cigna’s presence in online chronic care services, behavioral health and urgent care.

Membership growth is critical for any health insurer and Cigna has been successfully adding members for the past many years. This growth going forward looks strong as the company partnered with Oscar Health, which widens the scope for offering commercial solutions to small businesses.

It is well poised in its government business which consists of of Medicare Advantage (MA), Individual and Family Plans (IFP). Continued expansion to address 50% of Medicare eligible by 2025 will add to its MA membership. Cigna is working on doubling its IFP markets to 20 states, which will expand its addressable market from 20% to 40% by 2025.

Cigna is one of the few health insurers after UnitedHealth with a good international presence. It boasts more than 7000 employer clients in above 30 countries, thereby serving nearly 12 million customers. It is focusing on growth in the Middle East and Africa through new partnerships. Its international business gives it a good diversification benefit.

The company is taking an inclusive approach for growth and this involves distancing itself from a business, which doesn’t meet its expectations. To this end, it recently sold its Group Life and Disability insurance business. The divestiture will add slightly to 2021 earnings and the proceeds from the same will be utilized to pay off debt and buy back shares.

Attractive Long-Term Growth Guidance

Management is very vocal about the company’s next five-year growth estimates. From 2021 to 2025, this healthcare company will generate nearly $50 billion in cash from operations, of which four-fifth will be used to pay out dividends, repurchase shares and execute strategic mergers and acquisitions while one-fifth will be spent on funding capital expenditure to drive growth.

For the long term, its revenues will grow 6-8% while the EPS is expected at a 10-13% growth rate.

We expect steady investments from its healthy cash flows to bode well for the long haul.

Now with President Joe Biden supporting the Affordable Care Act, the regulatory landscape will improve, favouring all insurers in the process. Companies with the likes of Centene (NYSE:CNC) Corp. CNC and Molina Healthcare (NYSE:MOH), Inc. MOH are winners from the special enrolment period opened by Biden's administration.

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UnitedHealth Group Incorporated (NYSE:UNH): Free Stock Analysis Report

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Cigna (CI) Rides on Acquisitions, Strong Capital Deployment

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Cigna (CI) Rides on Acquisitions, Strong Capital Deployment

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