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On Thursday, BofA Securities maintained a Buy rating on CIGNA (NYSE:CI) shares with a steady price target of $420.00. The decision came after the company reported an unexpected 13% shortfall in its fourth-quarter earnings, posting $1.03 per share, and revised its 2025 earnings outlook downward by $1.74, a 6% decrease. According to InvestingPro data, CIGNA maintains a strong financial health score of GREAT, with particularly robust profitability metrics despite recent challenges. The company has demonstrated consistent growth with revenue increasing by 21% over the last twelve months. This revision indicates that CIGNA now anticipates an 8% earnings per share (EPS) growth, falling short of the previously projected 10% growth rate, even with the revised lower base. The adjustment is a significant shift from the long-term EPS growth forecast of 10-14% that CIGNA had increased in March.
The performance shortfall, particularly in the health plan sector and to a lesser degree in the pharmacy benefit management (PBM) business, has raised some concerns among investors. Despite these issues, BofA Securities suggests that the current valuation of CIGNA stock may limit further downside. The stock was trading at approximately 9.3 times its new EPS outlook based on indicated premarket pricing, and at 8.5 times the 2026 EPS if a 10% growth is assumed. InvestingPro analysis indicates the stock is currently undervalued, with analyst targets ranging from $340 to $438. The company’s strong market position is reinforced by its $84.37 billion market capitalization and consistent dividend payments maintained for 43 consecutive years.
BofA Securities’ analysts see an asymmetric potential upside for CIGNA stock over the next year if the company can grow from this new base and enhance its multiple back to the 10-12x range. They believe that the market’s concerns regarding PBM reform may be exaggerated, which underpins their decision to reiterate the Buy rating. InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which includes detailed analysis of CIGNA’s financial health, valuation metrics, and growth prospects among 1,400+ top US stocks.
CIGNA’s updated guidance reflects a more modest growth trajectory than anticipated. The company’s shares are being traded with the expectation of this adjusted growth and valuation multiples that reflect the current market sentiment. The BofA Securities team continues to see a favorable risk-reward balance for investors, considering the potential for CIGNA to outperform its revised expectations.
In other recent news, Elevance Health reported a lower-than-expected medical-loss ratio (MLR), leading to a positive sentiment across the health insurance sector. The company also reported operating revenue of $45.0 billion for the fourth quarter of 2024, a 6% increase compared to the same period the previous year. Analyst Glen Losev from Bloomberg Intelligence commented on the significance of these results.
In other developments, the Federal Trade Commission (FTC) released a report showing significant mark-ups on specialty generic drugs by the three largest pharmacy benefit managers (PBMs), Caremark Rx, Express Scripts, and OptumRx. The FTC’s investigation found that these PBMs’ affiliated pharmacies were reimbursed at higher rates than unaffiliated pharmacies for almost all of the specialty generic drugs examined. FTC Chair Lina M. Khan emphasized the need for policymakers to address the problem of drug cost inflation.
Shares of UnitedHealth Group (NYSE:UNH), CVS Health (NYSE:CVS), and Cigna Corp . climbed recently as investors reassessed the impact of new healthcare provisions. Analyst Ann Hynes from Mizuho (NYSE:MFG) highlighted that the provisions, targeting PBMs, are less stringent than feared and do not take effect until 2028.
Meanwhile, shares of American health-care companies owning pharmacy benefit management units saw a decrease in value following a statement by Pfizer (NYSE:PFE) CEO Albert Bourla that President-elect Donald Trump is committed to reforming the PBM system.
Finally, in response to President-elect Donald Trump’s vow to cut drug costs, shares of companies that own PBMs, such as CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth Group’s Optum, experienced a downturn. The market’s reaction underscores the growing political and regulatory pressures facing PBMs.
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