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About Cigna
We’ve previously analyzed insurance companies, particularly in the healthcare sector in recent stock analysis articles.
We feel no shame in admitting that they’re kind of boring but also admitting that they tend to be very, very profitable, especially the leaders within the sector.
Swimming among fellow health insurance sharks (not to be construed in a negative sense, just fun phrasing) such as UnitedHealth Group, Elevance Health (formerly known as Anthem), Aetna, Humana, Kaiser International Healthgroup and a few others, Cigna is still a force to be reckoned with.
Namely, according to TD Ameritrade’s platform, the company “offers medical, dental insurance and related products and services.”
In a nutshell, the company makes money in the same way in which its health insurance counterparts do; premiums.
Specifically, Cigna collects monthly premiums from those that it insures, and the company insures plenty.
Throughout its entire medical insurance network, it is reported that the company insures somewhere in the neighborhood of 17 million.
So, lots of premiums collected and thus, revenue generated.
We also think it’s worth noting that like a few of its peers, the company has maintained its leadership standing in the industry through organic as well as non-organic growth, or through acquisitions.
Now that a brief foundation has been laid regarding Cigna and its line of business and how it generates the bulk of its revenue, let’s get into the company’s core prevailing financials and ultimately try to get a better idea as to whether or not this seasoned healthcare company’s stock is worth investing in and holding for decades to come.
Cigna’s stock financials
Presently trading at a relatively pricey share price of a hair under $282, Cigna has a market capitalization of $85.69 billion, a price-to-earnings (P/E) ratio of 14.04 all while distributing an annual dividend of $4.92 to its shareholders.
This is a great start for Cigna’s stock (NYSE: CI), especially given that shares in the company’s stock are seemingly undervalued according to its P/E ratio.
A healthy annual dividend also doesn’t hurt.
Moving onto the company’s balance sheet, Cigna’s executive team is tasked with managing and properly deploying approximately $154.8 billion in total assets along with nearly $107.7 billion in terms of total liabilities.
We like the general state of Cigna’s balance sheet, particularly that its total assets outpace the value of its total liabilities by a comparably wide margin combined with the fact that the company seemingly has some debt firepower in order to help it continue growing.
This is a great combination from our perspective, especially for such an established company in the space.
Onto the company’s income statement, Cigna’s total revenue over the last five years has been as consistent as expected, with an expected leap in recent years, likely due to the closing of its acquisition of pharmacy benefit management platform, Express Scripts, which closed in late December of 2018.
Specifically, Cigna’s total revenue in 2018 was set at around $48.4 billion, skyrocketing the next year to approximately $153.7 billion.
We might add that we viewed Cigna’s purchase of Express Scripts as a savvy acquisition if we’ve ever seen one.
Shifting over to the last of the three big financial statements, let’s briefly touch on the company’s cash flow statement.
Particularly, it isn’t all that surprising that both Cigna’s net income and total cash from operations have stayed consistent and resoundingly positive, of course, particularly rising after the close of the company’s purchase of Express Scripts.
Cigna’s stock fundamentals
While taking an initial glance at the company’s trailing twelve month (TTM) net profit margin on TD Ameritrade’s platform, we found it to be considerably lower than what we expected.
However, upon further investigation of its competitors and their respective TTM net profit margins, it appears as though its not so much as a Cigna-specific issue but more so a common trend among the big players in the health insurance industry.
Specifically, according to TD Ameritrade’s platform, Cigna’s TTM net profit margin sits at just 3.71% to the industry’s average of 1.66%.
We’re definitely thankful that we don’t have to worry much about the company’s inability to out-profit the industry (on average) and there is also some comfort to be had in knowing that its primary competitors such as UnitedHealth Group, Elevance Health and Humana all have relatively low TTM net profit margins as well, standing at 6.37%, 3.84% and 3.02%, respectively.
Given this sample set, it appears as though Cigna’s TTM net profit margin is fairly middle of the road and this makes sense given its standing in relation to its aforementioned competitors, however, as briefly touched on before we’re happy to find that Cigna’s TTM net profit margin outpaces the industry’s average, as it should.
It should also be mentioned that, given that it is rather competitive at the top, it is sensible that the company’s TTM return on assets are ever so slightly above that of the industry’s average. Particularly, according to TD Ameritrade’s platform, Cigna’s TTM return on assets are perched at 4.48% to the industry’s average of 3.93%.
Should you buy Cigna stock?
One of the major positives to consider when pondering an investment in a massive operator in the healthcare sector is its natural recession resistant nature.
Largely irrespective of the state of the economy, both individuals and large organizations will need healthcare plans and we don’t see that exiting the basic corporate benefits package anytime soon. Additionally, one of the perks of investing in a company such as Cigna is that, from our point of view, it has drummed up a fair amount of pricing power which will undoubtedly help it not only continue churning out consistent annual revenue figures but also grow its network and offerings as well.
While none of the company’s core financial metrics blew our socks off, the consistency and operational efficiency is there and we also took a liking to the company’s current price-to-earnings ratio, as it indicates that this stock has some more ground to cover in terms of its intrinsic value meeting its share price.
Given all of the reasons above, we deem this company’s stock worthy of a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.