Cigna Corp. CI is more immune to the uncertainty from the ensuing changes in health care regulations following the 2020 presidential election, given its large book of administrative services only business and sizable international business.
The company is also mulling to sell off its Group Disability and Life business in order to focus on medical care provider area. All the major health insurers such as UnitedHealth Group, Inc. UNH, Humana Inc. HUM, and CVS Health Corporation CVS have invested to grow in the medical care provider line.
Factors Driving Growth:
Strong Growth in Health Services Business: The company’s Health Services segment, which consists of Express Scripts —the pharmacy benefits management business— should gain from growth in pharmacy scripts insourcing. The acquisition provides Cigna with cross-selling opportunities. The company expects adjusted scripts insourcing in the range of $1.17 billion to 1.19 billion in 2019 and the same to be nearly $1.4 billion in 2021.
Government Business to Grow in 2020 and Beyond: Cigna is poised to grow its Medicare Advantage business in 2020 and beyond The company expects membership growth of 10%-15% in this line of business over the long term, driven by product and geographic market expansion beginning in 2020.
International Markets: Cigna’s international market spanning more than 30 countries are well positioned for growth given secular increase in middle class population, proven local market capabilities, continuous innovation and rise of chronic disease. The CAGR of this segment’s revenues has been 8% from 2015-2018. The company’s deep customer insights, local talent and operating model, global provider network, continuous innovation and a local license base should further help in the growth of this segment.
Capital Efficient Business: Consistent cash flow from operations should allow the company to deleverage its capital structure and achieve debt-to-capital ratio of less than 40%. Significant financial flexibility also enables it to reinvest in business, pursue mergers and acquisitions and return capital to shareholders. It expects cash flow of operations to be more than $8 billion in 2019 and north of $8.5 billion in 2021.
Cigna’s core businesses —health services, government and international markets— provide path for sustained growth in a dynamic marketplace and regulatory environment.
The company remains on track to deliver EPS of $20 to $21 in 2021 and 10% to 13% average annual EPS growth over the long term.
Year to date, the stock has fallen 12.86% compared with its industry’s decline of 5.96%.
Cigna carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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