On Tuesday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on CIGNA Corporation (NYSE:CI) and increased the price target to $382 from the previous $365. The adjustment comes after CIGNA's shares have shown a notable year-to-date (YTD) outperformance compared to its peers in the managed care group. CIGNA's stock has appreciated by 7.3% YTD, while its peers have experienced a decline of 5.5%.
The firm attributes CIGNA's success to its effective execution across its core Commercial and Evernorth businesses, as well as its strategic capital deployment. CIGNA is also recognized for having less exposure to the emerging Medicare Advantage headwinds, which has been a concern for the sector.
"We still view there is room to run based on our latest SOTP analysis, supporting our increased Price Target (NYSE:TGT)," said Morgan Stanley analysts.
The price target is based on several key assumptions outlined by the firm. These include applying a price-to-earnings (P/E) multiple of 12.3x to CIGNA's Commercial Risk, Commercial ASO, Exchange Marketplace, and International segments. This multiple reflects CIGNA's 10-year average next twelve months (NTM) P/E. The Evernorth segment is valued at a P/E multiple of 13.4x, in line with Express Scripts Holding Company's (NASDAQ:ESRX) 10-year average NTM P/E multiple leading up to its acquisition date.
Furthermore, the Medicare and Prescription Drug Plan (PDP) segments are assumed to have a P/E multiple of 14.0x. This valuation results in an equity value that aligns with the potential purchase price of the segment by Health Care Service Corporation, which was indicated to be around $3.3 billion. The purchase price of $3.7 billion includes $400 million of freed up reserves.
InvestingPro Insights
As Morgan Stanley reaffirms confidence in CIGNA Corporation (NYSE:CI) with an increased price target, InvestingPro data and insights provide additional context to the company's financial health and market performance. CIGNA's market capitalization stands robust at $95.65 billion, reflecting its substantial presence in the healthcare sector. The company's Price/Earnings (P/E) ratio is at 18.87, with an adjusted P/E for the last twelve months as of Q4 2023 at a slightly lower 17.32. This indicates a reasonable valuation relative to its earnings, aligning with Morgan Stanley's positive outlook.
The company's revenue growth has been solid, with an 8.42% increase over the last twelve months as of Q4 2023, underscoring CIGNA's successful execution in its core businesses. This growth trajectory is further highlighted by a quarterly revenue growth of 11.65% in Q1 2023, showcasing the company's ability to expand its financial base amidst a dynamic healthcare market.
InvestingPro Tips spotlight CIGNA's strategic financial management, with the company aggressively buying back shares and maintaining a high shareholder yield. Additionally, CIGNA has raised its dividend for 3 consecutive years and has kept up dividend payments for an impressive 43 consecutive years, demonstrating a commitment to returning value to shareholders. These factors may contribute to the company's resilience and appeal to investors seeking stable returns.
For readers interested in a deeper dive into CIGNA's financial performance and future outlook, there are additional InvestingPro Tips available. With a subscription to InvestingPro+, users can access these insights and more. Use the coupon code SFY24 to get an additional 10% off a 2-year subscription, or SFY241 to get an additional 10% off a 1-year subscription. Currently, there are 12 more InvestingPro Tips listed for CIGNA, which can provide a comprehensive analysis for potential investors.
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