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Here's Why Investors Should Retain Cigna (CI) Stock for Now

The Cigna Group CI continues to be aided by two solid growth platforms, acquisitions and a solid financial position. A solid 2023 guidance also acts as an additional tailwind for the stock.

Zacks Rank & Price Performance

Cigna presently carries a Zacks Rank #3 (Hold).

The stock has gained 3.8% in the past six months compared with the industry’s 3.1% growth.

Zacks Investment Research
Zacks Investment Research

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Favorable Style Score

CI is well-poised for progress, as evidenced by its impressive VGM Score of A. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of all three factors.

Rising Estimates

The Zacks Consensus Estimate for CI’s 2023 earnings and revenues is pegged at $24.8 per share and $191.6 billion, indicating an improvement of 6.6% and 6.1%, respectively, from the year-ago readings.

Cigna’s earnings outpaced estimates in each of the trailing four quarters, the average being 3.6%.

Optimistic Guidance for 2023

This year, Cigna anticipates adjusted revenues at a minimum of $190 billion, which indicates growth of at least 5.2% from the 2022 reported figure.

Adjusted earnings per share are predicted to be a minimum of $24.70, which suggests a minimum growth of 6.1% from the 2022 figure.

Business Tailwinds

Cigna derives a majority of its revenues from pharmacy services and premiums. A growing specialty business and rising customer base should enhance pharmacy revenues and premiums. The company expects medical customers to grow by at least 1.4 million customers in 2023.

Cigna’s performance continues to benefit from the strength of its two growth platforms, namely Evernorth and Cigna Healthcare. A solid specialty pharmacy services suite drives the growth of the Evernorth platform, while the Cigna Healthcare unit benefits from an expansive customer base within its U.S. Government and U.S. Commercial businesses.

Express Scripts, Cigna’s pharmacy benefits business, should continue to drive pharmacy revenues by the strength of its supply chain, care and clinical management programs and adding three biosimiliars to the largest formulary. Accredo, CI’s flagship specialty pharmacy, is expected to grow at an accelerated pace and increase its contribution to the Evernorth segment in the future. The company expects mid-single digits and mid-to-high single-digits growth in the third and fourth quarters due to higher adoption of biosimiliars.

The U.S. Commercial business is expected to benefit from its competitive position and strong customer growth. U.S. Government business and International business should continue their growth trajectory with high-quality plans and geographic expansion. An aging U.S. population is expected to sustain a solid demand for its Medicare plans, which falls under the Government business.

In addition to the solid inflow of premiums, the Cigna Healthcare unit benefits from continuous product expansions and new collaborations or contract extensions with renowned healthcare systems.

CI resorts to acquisitions to bolster its suite of solutions and capabilities, as well as step into newer geographies and solidify its presence in existing markets. The company is on track to implement its Centene contract beginning in 2024. Cigna collaborated with CarepathRx Health System Solutions to accelerate and expand pharmacy care delivery to a rising number of patients with complex care needs. This would add to its existing offerings and benefit Cigna Healthcare and Evernorth’s clients.

A growing cash balance and robust cash-generating abilities will continue to empower Cigna in undertaking business growth investments and prudently deploying capital via share repurchases and dividend payments. In February 2023, management approved a 10% hike in the quarterly dividend. Its dividend yield of 1.7% is higher than the industry average of 1.4%. The company expects to generate an operating cash flow of at least $9.5 billion in 2023.

Key Concerns

There are a few factors that have been impeding the stock’s growth lately.

The company has been experiencing an increase in pharmacy and other service costs, medical costs and other benefit expenses. Such costs tend to weigh on the company’s margins. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.

Stocks to Consider

Some better-ranked stocks in the medical space are HCA Healthcare, Inc. HCA, Select Medical Holdings Corporation SEM and Atai Life Sciences N.V. ATAI. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for HCA Healthcare’s 2023 bottom line suggests a 9.2% increase from the prior-year levels. HCA has witnessed one upward estimate revision in the past week against none in the opposite direction. It beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 5.4%.

The Zacks Consensus Estimate for Select Medical’s 2023 earnings indicates a 56.9% year-over-year increase to $1.93 per share. It has witnessed one upward estimate revision over the past month against no movement in the opposite direction. The consensus mark for SEM’s 2023 revenues indicates 4.2% growth from a year ago.

The Zacks Consensus Estimate for Atai Life Sciences’ current-year earnings implies a 16.3% improvement from the year-ago reported figure. It has witnessed four upward estimate revisions over the past month against no movement in the opposite direction. ATAI beat earnings estimates in two of the last four quarters, met once and missed on one occasion.

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Cigna Group (CI) : Free Stock Analysis Report

HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

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atai Life Sciences N.V. (ATAI) : Free Stock Analysis Report

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