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Cigna Corporation (CI)
NYSE - Nasdaq Real Time Price. Currency in USD
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At close: 4:00PM EDT
964 reactions on $CI conversation
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Earning per share of 2.87 shows CI ability to generate Free Cash Flow in good time or bad time.
BofA downgrade is a buying opportunity! Analyst’s rationale is he is not sure about earnings visibility due to a bit of confusion around guidance provided on the 2Q call and likely higher 3q/4q medical costs. CI just reiterated guidance a week ago and the ASR should add some cushion to that given the healthy 60 cents of annual EPS accretion from buying in 3% of the FD OS in one quarter. So there is upside to his numbers, in contrast to what he says in his note.
On top of that, he says 10X is the right multiple for the business because it is somewhat slower growing and that has been the avg multiple since the Express Scripts deal was announced. More poor logic here. Cigna’s business is much less capital intensive as it’s 70+% services and 80% ASO in the MCO space. That allows for 10-13% EPS growth when including reinvestment of FCF, on par with other MCOs. Why is 10X the right multiple for a capital light FCF machine that grows earnings HSD organically? CI said it will generate $50 bil in operating cash flow in the 2021-2025 timeframe. That’s relative to the current $68 bil mkt cap…pretty compelling.
Who cares if 3q/4q have higher medical costs?! It means little when focusing on the intermediate term earnings power of the business as pricing/plan structures can be adjusted for 2022 and beyond to incorporate Covid related costs. Ultimately these are transitory headwinds that won’t affect 2023 earnings (my EPS estimate is $27 assuming 310 mil shares vs 330 mil shares post ASR completion). Put 10x (even if that’s a conservative multiple)on that Kevin and you get $270.
Underperform? Really? Seems like this guy’s analyst skills are underperforming since he was touting the stock $65 points higher.
CI is likely to be bought out
CI getting crushed. Any news? Never mind. Here it is. BofA Securities Double-Downgrades Cigna to Underperform From Buy, Lowers PT to $225 From $240, Shares Lower Premarket
$50 billion in expected operating cash flow ($40 billion in free cash flow) over the next 5 years vs. the current market cap of $70 billion is really compelling. Cigna plans to deploy an average of $8 billion per year to dividend, buybacks and some M&A. Assume $6 billion on average goes to buybacks and dividends…that is $18 per share in capital return, or roughly 9% of the current market cap. FCF yield today is 10%, growing to 15% by 2025. Cigna generated roughly $20 billion in cash flow during the past 2 years and retired roughly $10 billion in debt (also using proceeds from the Disability business sale). Most of the business is services, not insurance. Within the managed care portfolio 80% is in administrative (ASO) arrangements where Cigna does not bear underwriting risk. Estimates for Evernorth keep getting revised higher as that business is growing much faster than guidance. COVID is likely a very transitory headwind that is fully behind the company by 2023 (and partly by 2022). The company has the ability to reprice its insurance business every year as cost trends dictate. The accelerated share repurchase announced last week will take another 3% out of the share count immediately (equivalent to 60 cents in EPS accretion for 2022). How is this stock trading for less than 9X NTM EPS?!
Haha ... Kevin Fischbeck of BofA sneezes and the market reacts. What sheep. Fischbeck "reversed" his position from "buy" to "underperform" ... merely based on Cigna's "lack of clarity" on earnings projections. But more amazing is that he simply moved his price evaluation from $240 to $225 .... And that warrants a double downgrade? ... when the stock is currently at 205 to 210? What a hack.
Morgan Stanley conference presentation yesterday was positive.
Cigna’s CEO made it clear that the company would hit its guidance for $20.20+ in EPS in 2021…which means the next 2 quarters are somewhat derisked. The company also gave color on medical cost trends in 3Q…positively, non-Covid utilization is tracking BELOW baseline as the spike in Covid cases has limited capacity for procedures in the quarter. So although COVID-19 medical costs might be higher, there may be an offset in lower than expected non-Covid medical costs. Regardless…the franchise is diverse enough to enable Cigna to deliver on its financial commitments to investors for the year…that’s the takeaway!
Similarly, Cigna sees 2022 as a very good year of growth for the franchise…at least 10%. That puts EPS at $22.20+…but realistically it could be much higher than that (as I previously walked through in my analysis).
So the stock at $204 is at a measly 9.1X 2022E conservative EPS guidance. By the way, Morgan Stanley is a full $1+ ahead of this EPS estimate at $23.45 for 2022. MS is also $0.50 ahead of the $20.20+ EPS guidance for 2021…so it expects a beat on EPS relative to guidance/consensus in 2H 2021 as well.
Cigna CEO David Cordani said the announced ASR was management’s way of signaling to the Street that it viewed the stock as undervalued. And he affirmed his $50 bil operating cash flow target for 2021-25.
The stock is a BUY.
Cigna would be in the 220’s this morning absent that bogus BofA downgrade .
YTD Cigna is up less than a dollar . That’s ridiculously cheap considering current & forward earnings , a $6B buyback and a new $4.00 dividend .
could this be the day to start a position? crazy valuation on this drop compared to the market
added at $204.60
Too funny that they are trying to keep it down. ANTM up over 3.2%, UNH up over 2.5%, and CI only up 1.7%....Really? I bought options at the open and they are already in the money and will continue to gain value in to the close.
Let’s do some arithmetic!
Earnings estimates revisited:
2021: $7 bil in adjusted earnings divided by 340 mil shares equals $20.58 in EPS
Assume 5% earnings growth in 2022 (that’s just recovering the $1/sh in COVID costs) = $7.35 bil in adjusted earnings. That assumes ZERO core growth. Divide by 320 mil shares = $22.97 in EPS.
Assume 8-9% in adjusted earnings growth in 2023 (that just recoups the full Covid impact with minimal core growth in the business) = $8.0 bil. Divide by 310 mil shares =$25.80 in EPS.
But I’m going to assume some core growth in the business in both years. Let’s say 2% in 2022 (bringing adjusted earnings to $7.5 bil), and 4% in 2023 plus recovery of full COVID costs (bringing adjusted earnings to $8.35 bil). That gets me to EPS in 2022 of $23.44 and in 2023 of $26.95.
Guidance is $20.20+ for 2021 and $22.20+ for 2022. Cmon…does this not seem overly conservative?!
From Credit Suisse.........Raising 2021 EPS to $20.34; 2022 EPS to $22.40: We are raising our 2021 EPS to
$20.34 from $20.25 (guidance calls for ‘at least $20.20’) and 2022 EPS to $22.40 from
$22.25 (company 2Q21 commentary indicated ‘at least ~$22.22’) as we factor in the
company’s ASR program while adjusting our overall future outlook for share repurchases.
As a reminder, the company’s outlook includes the potential impact of future share
repurchases, and the company at their 4Q20 earnings call previously indicated they had
$6.6 bln available for share repurchases and strategic M&A.
I just wanted the retail investors to be aware that CI believes their stock is undervalued which is why they are doing accelerated share repurchases. BUT please read the news release, this is NOT a NEW share repurchase . This is accelerating purchases of the remaining (existing $3.8B) plan that is already in place. GLTA
They had some interesting insights about CI on (
). Definitely made me think twice about the company.
Bill, was this a wholesale downgrade of healthcare stocks? There are many other HC stocks down today, though none as bad as CI.
Bought my initial position today at 204.03
Yup bought last dip sold 211 bought again 203 will go to 210 or so sell rinse wash repeat
Best buy of the week on AAPL CI APLS NVAX indeed....GL
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