The stock of Cigna Corp. CI witnessed the Zacks Consensus Estimate for current-year earnings being revised 1.4% upward over the last 30 days. This shows analyst’s optimism over the company’s favorable performance, driven by the recently closed acquisition of Express Scripts.
The addition of Express Scripts has provided diversification to Cigna’s existing businesses – administrative services, international operations, and disability and life insurance, which are already performing well. For the first nine months of 2019, the company’s revenues and EBITDA grew 196% and 77%, respectively, mainly due to accretion from the acquisition of Express Scripts.
Following its second-quarter performance, management raised its earnings outlook for 2019, representing 17-19% EPS growth over the company’s strong 2018 performance.
It expects to deliver $20 to $21 of EPS in 2021 and 10% to 13% average annual EPS growth over the long-term.
The combination of Express Scripts’ pharmacy benefit business with Cigna’s health insurance business will help control drug pricing costs to a large extent, which is one of the biggest components of soaring medical costs. Notably, Cigna has a better control over its medical costs 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. Other than Cigna, only UnitedHealth Group, Inc. UNH has a 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 large chunk of revenues coming from the administrative services only ("ASO") business, which though has lower profitability, 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 over the years. 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 over time as it repays debt.
Year to date, the stock is down 22% compared with the industry’s decline of 8%. This fall in the stock price makes it an attractive buy. The stock also looks undervalued with its 12-month forward price-to-earnings ratio of 8.2 compared with 13.1 for the industry.
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Cigna currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks are Molina Healthcare, Inc. MOH and Anthem inc. ANTM, both sporting a Zacks Rank #1 (Strong Buy) at present. Molina Healthcare and Anthem surpassed estimates in each of the four reported quarters, the average positive surprise being 66.93% and 4.6%, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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