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Why Cigna Stock Could Rise Quickly
Stock Analysis & Ideas

Why Cigna Stock Could Rise Quickly

Cigna (CI), one of the largest and most diversified healthcare providers in the United States, would be doing better in 2022 if oil, gas, and other commodity prices hadn’t increased. These have led to strong interest from market participants in energy stocks and commodity producers, driving health insurance stocks somewhat out of favor.

Cigna operates a profitable business, while analysts say the health insurance market will experience a strong growth spurt in the coming years due to catalysts. Under these conditions, Cigna stock should gain quickly once the healthcare market picks up again.

Thus, I am bullish on this stock.

Q4 and FY 2021

In the fourth quarter of 2021, the specialty pharmacy services recorded strong organic growth, while the volumes obtained by the company through its retail network of insurance brokers and advisers performed well.

Coupled with tailwinds from the COVID-19 vaccination campaign, Cigna’s pro forma profit grew more than 35% year-over-year to $4.77 per share (beating the average analyst estimate by $0.06) on total revenue of nearly $46 billion (up 10% from Q4 2020). Revenue exceeded analysts’ median forecast by $1.71 billion.

For full-year 2021, pro forma earnings from ongoing operations were $20.47 per share (up 11% from 2020), on aggregate revenues of approximately $174.3 billion (up 8.5% year-over-year).

High Operational Profitability

Revenue has increased at a growth rate of 37.8% per year over the past three years, outpacing 15 of the 17 total companies operating in the health plans industry.

Earnings (excluding one-time items) have grown 14.3% per year over the past three years, outperforming nine of the 17 companies in the health insurance industry.

Outlook of the Health Insurance Market

The U.S. health insurance market is the largest in the world, according to analysts at Mordor Intelligence.

Based on additional statistics from the analyst report, U.S. government spending on healthcare, which reached $4 billion in 2019 (about 18% of the country’s gross domestic product), is expected to grow 4% each year through 2026.

Of course, a health risk insurance program comes with a cost that not everyone in the United States can afford. This is undoubtedly a barrier to market growth.

However, factors that instead encourage market expansion are far more potent than the negative effects associated with the cost of an insurance program. These beneficial catalysts can be summarized in the following:

1. The rapid increase in certain chronic diseases in the U.S. population, the observation of which has been linked to the unhealthy lifestyles of modern society. These require regular monitoring and treatment.

2. The rise in medical costs.

3. The increase in the frequency of certain pathologies, the observation of which is associated with the aging population.

4. The increase in employment also has a positive impact on the market as it leads to stronger demand for group and individual health insurance.

5. Rising wages to counter the rise in prices and retain workers during the pandemic will allow staff to afford a more expensive healthcare plan.

6. Finally, COVID-19 will also create situations for which health insurance will be required.

Cigna’s Outlook Full-Year 2022

Cigna is targeting $1.77 billion in revenue for full-year 2022, with analysts forecasting an average of $179.09 billion.

The company also expects pro forma net income per share to be as high as $22.40, compared to the average analyst estimate of $22.48.

Wall Street’s Take

Over the past three months, 11 Wall Street analysts have issued a 12-month price target for CI. The company has a Moderate Buy consensus rating based on six Buys, five Holds, and zero Sell ratings.

The average Cigna price target is $259.36, implying 7.2% upside potential.

Stock Statistics

Shares are changing hands at around $241 for a market cap of $77 billion, a P/E ratio of 15.4, and a 52-week range of $191.74 to $272.81. 

Conclusion

Due to market rotation, which favored the energy and materials sectors to take advantage of higher commodity prices, Cigna did not perform as well as it could have. 

The company runs a profitable business in a high-growth context, so shares should rise faster once the current momentum for energy and mining stocks fades.

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