Cigna Corporation

Cigna Corporation (NYSE: CI) is a global healthcare service company that provides pharmacy benefit management and health insurance services. Its operating segments are 1) Evernorth, which offers coordinated and point solution health services, including pharmacy solutions, benefits management solutions, care, and intelligence solutions to health plans, government organizations and health care providers; 2) US Medical, which provides US Commercial and Government health care solutions to employers and individuals; and 3) International Markets, which consists of a range of medical and supplemental health, life and accident benefits and health care benefits to multinational employers for their globally mobile personnel.

Why Should Investors Book Profit?

• Decline in Reinvestment Rate: The company's reinvestment rate at the end of FY21 is 8.2%, compared to 17.7% in FY20. This implies a relatively declining reinvestment profile against the previous comparable period.
• Leveraged Balance Sheet: The company is more exposed to balance sheet risk than its peers, with a Debt/Equity ratio of 0.71x at the end of December 31, 2021, compared to the industry norm of 0.59x. Furthermore, its long-term debt-to-total-capital ratio was 38.5%, compared to the industry average of 23.7% for the same period. These leveraged financials put the corporation at risk of huge swings due to the slightest adjustment in interest rates.
• Competition Risk: CI operates in the health service industry and faces direct competition from more significant players with higher financial and operational resources at their disposal. In addition, this industry has recently witnessed a lot of merger and acquisition activity. Should this industry consolidate further, it could impair the financial and operational performance of the company.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

CI's share price has inclined 21.54% in the past six months and is currently leaning towards the higher band of the 52-week range of USD 191.74 to USD 272.81. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 220.01.

Considering the company's highly leveraged balance sheet, a decline in reinvestment rate, current valuation and associated risks, we recommend a "Sell" rating on the stock at the closing price of USD 246.25, up 2.77% as of April 01, 2022.

Three-Year Technical Price Chart (April 01, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

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