Cigna Holding Co CI recently completed its acquisition of pharmacy benefit manager Express Scripts. The combined business is poised for above-peer earnings growth, according to Raymond James.
The Analysts
Raymond James analyst John Ransom upgraded Cigna from Market Perform to Outperform with a $215 price target.
Wells Fargo Securities analyst Peter Costa maintained a Market Perform rating for Cigna and lowered the price target from $221 to $200. Costa has an Outperform rating on Anthem Inc ANTM with a $314 price target.
Raymond James: Cigna Poised For Earnings Growth
Cigna shares still trade at a substantial discount to both the peer group and the overall market, Ransom said in a Thursday note.
The predicament is due to Cigna's business mix, which is weighted toward commercial and PBM — and the noise created by its Express Scripts buy, the analyst said.
Ransom expects the company's valuation to improve due to the health insurance market's relatively low rate of change and his expectation of "continued consistent execution and a moderate medical trend."
The analyst is convinced of Cigna's fundamentals and its ability to achieve 6-8-percent annual revenue growth in the out years, supported by low-double-digit growth in its Medicare business.
The relatively low rate of change in the industry and an expected $600 million in synergies by year three mitigate concerns about Express Scripts' margins, Ransom said.
Raymond James estimates 2019 revenues of $153 billion, including $100 billion of PBM revenues. The firm models adjusted EPS of $20.95, or $16.09 excluding Anthem. For 2020, assuming no contribution from Anthem, the firm estimates revenues of $141.8 billion and adjusted EPS of $18.74.
Wells Fargo Sees More Legal Risk For Cigna
Cigna is claiming a $13 billion purchase price bid premium as damages from Anthem following the termination of the merger agreement between both companies, Costa said in a Thursday note.
A positive outcome for Cigna is uncertain, but it may stand to receive a $1.85-billion reverse termination fee if Anthem fails to prove Cigna breached the agreement, the analyst said.
The companies are bickering over a second contractual price check that Anthem believes was due and was not done to lower prices, he said.
In the above two cases, Costa sees more risk for Cigna than Anthem, and even if the former manages to win the first case, it faces the risk of losing the second, which involves greater damages, Costa said.
Wells Fargo expects Cigna to settle both cases for limited gains.
"Given the timing and CI's weakened balance sheet post the Express Scripts merger and plans to use ESRX's cash flow to reduce debt, we see more share price risk for CI."
The Price Action
Cigna shares were trading near-flat at $187.15 at the time of publication Thursday, while Anthem was down 1.6 percent at $250.92.
Related Links:
Why Bernstein is Skeptical Of Cigna's Move to Buy Express Scripts
Cigna Set To Disrupt Commercial Risk Market, Goldman Sachs Says In Upgrade
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