Shares of The Cigna Group (CI – Free Report) have plunged 18.7% in the past three months, underperforming the industry’s decline of 12%. Peers like Centene Corporation (CNC – Free Report) and Humana Inc. (HUM – Free Report) have lost 12.1% and gained 8.7%, respectively, over the same time frame.
The S&P 500 Composite has returned 4.8% over the same period, highlighting a divergence in performance. The stock is currently trading below its 50-day and 200-day moving average, signaling potential downward momentum.
CI’s 3-Month Price Performance Comparison
Image Source: Zacks Investment Research
Given this performance so far, should investors still consider holding on to Cigna stock, or should they steer clear of it? Let’s delve deeper.
What’s Weighing on CI Stock?
Cigna and the broader healthcare industry are currently grappling with heightened scrutiny over the role and practices of Pharmacy Benefit Managers. A proposed bipartisan bill could mandate healthcare companies to divest their pharmacy assets, potentially disrupting their market dominance and revenue streams. This uncertainty has weighed on investor confidence, contributing to a significant decline in stock prices for major players.
The healthcare industry as a whole is receiving criticism for inefficiencies and escalating costs. The U.S. healthcare expenditure, far outpacing that of other developed nations, has not translated into superior health outcomes. Such challenges, along with increasing political and regulatory pressures, underscore the headwinds confronting industry stakeholders, making the road ahead uncertain.
CI also has a debt-laden balance sheet, with cash and cash equivalents of only $5.9 billion as of the third quarter of 2024 compared with a whopping $30.2 billion of long-term debt. Its times’ interest earned of 3.41X at the third-quarter end is much lower than the industry’s average of 6.09X.
Cigna’s Growth Drivers
Despite the recent mounting regulatory concerns in the medical space, Cigna is a strong business fundamentally, as highlighted by its two robust growth platforms — Evernorth and Cigna Healthcare. The Evernorth platform fuels its growth through a comprehensive range of specialty pharmacy services, thereby significantly boosting pharmacy revenues for the parent company.
In the first nine months of 2024, pharmacy revenues surged 35% year over year. Cigna anticipates adjusted revenues for 2024 to be a minimum of $235 billion, which indicates growth of at least 20.3% from the 2023 figure. Adjusted earnings per share are predicted to be a minimum of $28.40, which implies a minimum growth of 13.2% from the 2023 figure.
Simultaneously, the Cigna Healthcare unit benefits from an extensive customer base within its U.S. Healthcare operations. The unit is projected to deliver long-term average annual adjusted earnings per share growth between 7% and 10%. An increasing customer base translates to higher premium income, the largest revenue source for health insurers. Additionally, an aging U.S. population is expected to sustain the strong demand for Medicare plans.
Beyond premium growth, Cigna Healthcare gains from continuous product innovation, along with new collaborations and extended contracts with leading healthcare systems. Cigna also employs strategic acquisitions to broaden its capabilities, penetrate new regions and bolster its position in existing markets. To concentrate on high-growth areas, the company has divested its non-health-related units.
Cigna’s sound cash reserves and cash generation capabilities allow it to invest in business expansion while maintaining shareholder returns through share repurchases and dividend payments. Over the next five years, management projects operating cash flows of approximately $60 billion. The company approved a 14% increase in its quarterly dividend in February 2024. Its dividend yield of 2% remains higher than the industry average of 1.54%.
CI’s Valuation
The company is currently trading at 8.83X forward 12-month earnings, below its five-year median of 10.65X and the industry average of 14.57X. The stock also looks attractively valued relative to other companies in the space, such as Humana and Centene, which have a forward 12-month P/E of 15.91X and 8.92X, respectively.
Image Source: Zacks Investment Research
CI’s Earnings Estimates & Revisions
The Zacks Consensus Estimate for CI’s 2024 earnings is pegged at $28.50 per share, indicating an improvement of 13.6% from the year-earlier reading. The estimate for revenues is $244.6 billion, implying a 25.2% increase from the prior-year actual. The 2024 earnings estimates have remained stable in the past 60 days.
Cigna’s earnings outpaced estimates in each of the trailing four quarters, the average surprise being 4.42%.
Cigna Group Price and EPS Surprise
Cigna Group price-eps-surprise | Cigna Group Quote
Conclusion
Despite recent challenges, including regulatory scrutiny, debt concerns, and declining stock performance, Cigna’s strong fundamentals, diversified growth platforms, and attractive valuation make it a stock worth holding for investors. The company’s focus on expanding its Evernorth and Cigna Healthcare units, coupled with robust cash flow projections and shareholder-friendly initiatives, underscores its resilience in a challenging environment. Overall, the outlook is largely neutral for Cigna shares.
Cigna carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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