Cigna (CI) Hits 52-Week High on Recent Buyout, Growth Plans

On Jul 12, the stock of Cigna Corp. CI hit a 52-week high of $173.44. The rise in the stock is believed to have been driven by an acquisition, its detailed long-term growth plans unveiled at a recent investor conference and the lifting of Medicare Advantage (MA) sanctions from the Centers for Medicare & Medicaid Services (CMS).

In the last one year, the stock has returned 32%, a tad lower than the Zacks categorized Insurance - Multi line industry’s gain of 33% but significantly higher than the return of 12% from the S&P 500 index.

Investors favorably viewed Cigna’s recent purchase of Zurich Insurance Middle East, which will provide it a stronger foothold in the Gulf countries of UAE, Lebanon, Kuwait and Oman. The deal will further strengthen its already strong international business, the premium at which has witnessed a 12% CAGR to $1.9 billion in 2016 from $0.9 billion in 2009.  

This deal has made the company’s investors quite optimism about its efforts to diversify operations outside U.S. markets that are faced with stiff competition and stringent regulations.

Shares of the company have performed strongly despite the failed merger of Cigna with Anthem Inc. ANTM. Cigna’s investors gained confidence in its ability to grow as a stand-alone entity, after it shared detailed long-term growth plans at an investor conference on Jun 21.

The company gave 2021 earnings per share (EPS) guidance of $16, and an EPS annual growth guidance of 10-13%. The 2021 EPS guidance took into consideration substantial balance sheet strength of $7 billion to $14 billion deployable cash.

Segment wise, long-term revenue growth guidance was – mid-teens for Global Supplemental; high-single digit for MA, high-single digit for the Commercial Employer market and mid-single digit for Group Disability and Life. Management reiterated that the company will execute on at least $2 billion of the authorized $3.7 billion in share repurchase in 2017.

Investors also acknowledge the company’s ability to maintain the medical cost trend at a level below the industry average. The company has been able to achieve this on the back of its value-based care initiatives.

Shares must also have received a boost from the lifting of MA sanctions (last month) by CMS. The company was restricted to sell MA plans since Jan 2016, after it was found guilty of violating regulations relating to these.

Now, with the sanctions lifted, Cigna will be able to participate in an open enrollment period for 2018 plans, which will start from Nov 1, 2017. The development will add to the company’s organic growth by increasing MA membership.

Cigna carries a Zacks Rank #2 (Buy). Other companies in the health insurance space with the same Zacks Rank are Aetna Inc. AET and Humana Inc. HUM. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Aetna beat estimates in each of the last four quarters, with an average positive surprise of 8.62%.

Humana beat estimates in each of the last four quarters, with an average positive surprise of 3.75%.

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