On Thursday, Deutsche Bank (ETR:DBKGn) upgraded CIGNA Corporation (NYSE:CI) from a Hold to a Buy rating, while also increasing the price target to $370 from the previous $355. The adjustment reflects a revised earnings per share (EPS) estimate for the year 2024 at $28.42, with the target multiple expanding from 12.5x to 13x.
The upgrade comes as the firm expresses greater confidence in CIGNA's ability to meet its 2025 EPS projections, particularly without the burden of the underperforming Medicare Advantage (MA) segment. The analyst cites an anticipated positive revision bias of up to approximately 9% for the EPS estimates, driven by an influx of capital and a strategic focus on accretive mergers and acquisitions (M&A) as well as share repurchase initiatives.
CIGNA's valuation has been a central component of the investment thesis, with expectations that the market would assign a higher value to the company's exposure in the commercial sector, which is seen as more profitable but slower-growing compared to the government-pay space.
"While we believe the company has navigated the challenges in the core commercial business with good client retention levels and new business wins, it still faces margin pressure in the near term due to the CNC PBM implementation expenses and elevated growth investment," said the analysts
The analyst also outlines potential downside risks for CIGNA, which include the company's execution in its MA segment, commercial Managed Care Organization (MCO) pricing trends, risks associated with prescription volume, and potential reforms in the Pharmacy Benefit Management (PBM) industry. These factors could influence the company's performance and are important considerations for investors.
InvestingPro Insights
Following Deutsche Bank's positive outlook on CIGNA Corporation, InvestingPro data and analysis provide additional context for investors considering the healthcare giant. With a market capitalization of $89.46 billion and a solid price-to-earnings (P/E) ratio of 17.09, the company presents a stable investment profile. The adjusted P/E ratio, reflecting earnings over the last twelve months as of Q3 2023, stands at an even more attractive 16.2.
InvestingPro Tips highlight CIGNA's significant shareholder-friendly activities, with management aggressively buying back shares and a history of raising its dividend for 3 consecutive years. Additionally, the company has maintained dividend payments for an impressive 42 consecutive years, underscoring a commitment to returning value to shareholders. The tip that CIGNA is trading at a low revenue valuation multiple also suggests that the company's stock may be undervalued compared to its revenue generation, which was $189.86 billion over the last twelve months as of Q3 2023.
For those looking to delve deeper into CIGNA's financial health and market performance, InvestingPro offers a comprehensive suite of additional tips. Currently, there are 11 more InvestingPro Tips available for CIGNA, which can be accessed with a subscription now on a special New Year sale with a discount of up to 50%. Moreover, use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription.
Investors may also find the dividend yield of 1.63% and a recent dividend growth of 9.82% to be compelling reasons to consider CIGNA as a potential addition to their portfolios. The company's strategic focus on accretive M&A and share repurchase initiatives aligns well with the InvestingPro Tip regarding high shareholder yield.
With CIGNA's next earnings date slated for February 2, 2024, investors have timely data to inform their decisions. The fair value estimates from analysts and InvestingPro suggest a potential upside, with figures at $360 and $364.96 respectively, compared to the previous close price of $300.95. This aligns with Deutsche Bank's increased price target, reinforcing the optimistic sentiment around CIGNA's future performance.
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