We Like Cigna

| About: Cigna Corp. (CI)
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Cigna Corp (NYSE:CI) is a United States based, global provider of employee benefits services. Services provided are a wide variety of group insurance plans that cover benefits such as health, dental, life, disability, and pharmacy benefits. We believe that Cigna is a solid insurance company with many long-term trends working in its favor.

First, starting in 2014, the new Obama Care legislation will go into effect in the United States. Implementation of this legislation should increase enrollment (and profits) for Cigna as more people gain access to health insurance. Second, an ageing population in the United States should also bolster Cigna's lucrative supplemental insurance business as more people enroll for Medicare and Medicaid benefits. Cigna is growing this part of its business by expanding geographically with its latest acquisition of Health-Spring, in January 2012, bringing in about 850,000 new Medicare Part D members. Third, we believe that Cigna's operations in the emerging markets should pay large dividends in the future. Our view is that the economies of the developing world will continue to grow a brisk pace. As these economies prosper, so should Cigna's insurance operations in these emerging markets. Cigna has made direct investments in its own operations in these markets as well as made investments through partnerships with local insurance companies. We expect this part of Cigna's business to grow at a pace three to four times faster than Cigna's business in the developed world. With these trends of healthcare reform in the Untied States, an aging population in the United States, and great growth opportunities in the developing world, Cigna should experience many years of profitable grow in the future.

One recent positive for Cigna, is that UBS initiated coverage of Cigna on April 5, 2013, with a 12-month price target of $76.00/share. The UBS analyst sites Cigna's low exposure to commercial individual and small group insurance, in the United States, as a positive. These two segments of Cigna's business will be the most affected by negative aspects of new healthcare reforms in the United States. Moreover, these segments of Cigna's business are quite small representing only about 1.4% of total membership which is a number that equates to about 1.0% of Cigna's earnings. According to the UBS analyst, Cigna should fare relatively well with the coming reforms to America's healthcare system.

In 2013, we expect Cigna to grow revenues by about 9.5% and earnings by about 5.5%. Analysts estimate that Cigna will earn $6.35/share in 2013 and $6.92/share in 2014. Of the 19 analysts covering the stock, 12 have a Buy [6] or Strong Buy [6] rating on the stock with the rest having a hold rating.

In terms of valuation, we believe that Cigna is a good value at $66.17/share for the following reasons:

  1. Cigna has an inexpensive forward earnings multiple of 10.4 times 2013 earnings.
  2. Cigna has a solid balance sheet with $3.14 billion in cash and $5.20 billion in debt relative to an EBITDA of $3.22 billion.
  3. Cigna has an attractive PEG ratio of 0.99
  4. The median 12 month price target for Cigna is $72.00/share
  5. S&P has a Buy rating on the stock (4 out of 5 Stars) and a calculated fair value of $91.70/share.

Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.