Cigna Poised For Growth In 2019 On Express Scripts Buyout

Cigna Corp. (NYSE:CI) looks well poised to growth with the recent acquisition of Express Scripts (NASDAQ:ESRX), the pharmacy benefits manager, which has transformed it into a diversified health services company. The company’s existing businesses — administrative services, international operations, and disability and life insurance — are already performing strongly, and the addition of this new business will make it a sort of one-stop shop of healthcare needs.

The combination of Express Scripts’ pharmacy benefit business with Cigna’s health insurance business will help control drug pricing cost to a large extent, one of the biggest components of soaring medical cost. Cigna has better control over its medical cost than other players in the industry. The decline in medical costs should further aid its margins.

Another distinguishing feature of the company is its international business, which provides additional diversification opportunities. Only another company in the space, UnitedHealth Group, Inc. (NYSE:UNH), has growing international business.

Cigna’s international business, which includes India, Hong Kong, Turkey and the Middle East, among others, has overall recorded double-digit revenue and earnings growth for the past seven years. The biggest international market for Cigna is South Korea, where it has been operating for more than three decades.

Moreover, the company has a chunk of revenues coming from the administrative services only (ASO) business, which though has lower profitability but is growing in size and provides opportunities for cross selling.

Another positive for Cigna is its strong capital position. Its cash flow from operations has been increasing consistently for the past four years and the trend continued in the first nine months of 2018. An increasing cash flow provides scope for investment in business. Though the company’s leverage levels have increased due to the purchase of Express Scripts, the same should moderate by next year as the company repays debt.

Cigna expects adjusted EPS in 2019 to gain in the double-digit range (this excludes any impact from transitioning of clients by Express Scripts specially Anthem (NYSE:ANTM)). By the year 2021, Cigna projects adjusted EPS of $20 to $21, of which $2 to $3 will come from Express Scripts.

In a year's time, shares of the company have lost 6.1% compared with the industry's decline of 23.2%.

Cigna carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the healthcare space are BioTelemetry, Inc. (NASDAQ:BEAT) , Medpace Holdings, Inc. (NASDAQ:MEDP) and AMN Healthcare Servcies Inc. (NYSE:AMN) . While BioTelemetry carries a Zacks Rank #1 (Strong Buy), the other two carries the same Zacks Rank as Cigna. You can see the complete list of today’s Zacks #1 Rank stocks here.

BioTelemetry beat estimates in each of the four quarters with an average positive surprise of 55.6%. Medpace and AMN Healthcare beat estimates in three of the four reported quarters with an average positive surprise of 22.8% and each, 23.97% and 4.17%, respectively.

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