Cigna Set To Disrupt Commercial Risk Market, Goldman Sachs Says In Upgrade

Insurer CIGNA Corporation CI is poised to sustain share gains in the U.S. commercial risk market, according to Goldman Sachs.

The Analyst

Analyst Stephen Tanal upgraded shares of Cigna from Neutral to Buy and increased the price target from $193 to $212, suggesting more than 24-percent upside.

The Thesis

Tanal projects market share gains for Cigna on the basis of the following factors: 

• The absence of a major commercial risk business to protect.
• A nationwide value-oriented provider network is in place. 
• Upside is expected from potential new commercial risk business wins.

If Cigna successfully closes the Express Scripts Holding Co ESRX acquisition, Tanal said Cigna's market share gains in the commercial risk space will accelerate due to its improved ability to manage the pharmacy trend. (See the analyst's track record here.) 

The above factors could help Cigna grow its commercial risk book with little incremental investment of resources, the analyst said. 

Goldman estimates the addressable profit pool for commercial risk at $21-$41 billion in aggregate.

Each 100-basis point market share gain at half the estimated margin rate of the industry would mean $100 million to $200 million in pre-tax profit, equaling 2-5 percent of Goldman's 2018 pre-tax estimate for Cigna.

"We believe CI's ability to continue taking share will be supported by its ability to sell its track record of best in class medical cost management," Tanal said. 

The Price Action

Cigna shares have shed about 16 percent in the year-to-date period.

Related Links:

Why Bernstein is Skeptical Of Cigna's Move to Buy Express Scripts

CVS: An Interesting Trade On The Cigna-Express Scripts Deal