Follow The Money To Cigna

Cigna Falls On Strong Results, Analyst Upgrade 

It is times like this when following the money can give the best returns and the money is flowing toward Cigna NYSE: CI. The company released a better than expected earnings report and raised its guidance sparking yet another wave of analysts upgrades and price target revisions. The latest includes at least 7 post-release commentaries with 7 price target upgrades and a new high price target as well. The high price target comes from Cowen which upgraded the stock to Outperform citing a number of catalysts for higher share prices. Among them are the stock's low valuation, an inflation-induced tailwind for managed healthcare, increasing market share, and an oncoming wave of biosimilar medications that will drive revenue for the pharmacy segment. 

Cowen’s price target of $329 is up from the previous $262 and compares very well to the Marketbeat.com consensus of $276. The consensus is only 5% above the current price action compared to almost 25% for Cowen’s target but the consensus is trending higher. Assuming the other 16 analysts following the stock see similar catalysts in store for the company there should be a few more upgrades and/or price targets at least. Until then, the stock is rated as a firm Buy by the analyst community. 

Cigna Beats And Raises Guidance For 2022

Cigna had a great quarter supported by strength across all business segments. The company reported $44.01 billion in net revenue for a gain of 7.4% over last year. The revenue also beat the Marketbeat.com consensus by 120 basis points and the good news does not end there. Moving down to the earnings, both segments contributed to earnings power and a YOY increase in margin. Digging a little deeper, a 180 basis point improvement in Cigna margin was offset by a 10 basis point contraction in Evernorth and both are better than expected. The  $6.01 in adjusted EPS is up from last year’s $4.73 and a company record. 

Turning to the guidance, the company raised its revenue target to at least $177 billion versus the consensus of $179 but it is the earnings guidance that has us interested. The adjusted EPS is expected to be at least $22.60 versus the consensus of $22.49 which is very good news for shareholders. The company is using its capital to buy back shares and pay a dividend that we view as growing. The company has only increased the distribution for two years but there is ample room in the numbers and earnings growth in the forecast. In our view, the company may not continue the 150% CAGR it has set but a healthy double-digit pace of increase is a reasonable expectation. 

The Technical Outlook: Cigna Might Have Just Peaked Out 

Institutional buying has been supporting Cigna's price action for years but the market may have just topped out. While the institutional activity has been net bullish over the last year it has been fairly balanced and not the support it has been in the past. This may keep price action from moving much higher in the near term but the long-term outlook is still bullish. In the near-term, price action may move sideways within the newly established range of $240 to $280 before setting a new high. The risk is that institutional support will fail and we don’t see that happening right now, not with the stock trading at 10X its earnings and yielding 1.7%. Longer-term, we see Cigna completing a consolidation at the current levels and then moving up to new highs as revenue, earnings, and capital returns grow.