On Monday, Morgan Stanley reaffirmed its confidence in CIGNA Corporation (NYSE:CI), maintaining an Overweight rating and a $392.00 price target. The firm anticipates CIGNA's upcoming investor day on Thursday, March 7, 2024, to reinforce belief in the company's long-term earnings growth potential, which is projected at 10-13% for earnings per share (EPS).
The investor day is expected to showcase CIGNA's strengths, particularly in its commercial insurance and Evernorth businesses, which account for approximately 40% and 57% of earnings before interest and taxes (EBIT), respectively.
The event is also seen as an opportunity for CIGNA to emphasize its strategic focus on core competencies and its relatively smaller exposure to the Medicare Advantage market compared to peers.
Morgan Stanley highlighted that CIGNA's positioning is advantageous, especially when other companies with larger Medicare Advantage exposure are encountering challenges. The firm adjusted its Top Pick in the Managed Care sector to CIGNA from UnitedHealth Group (NYSE:UNH), although it continues to maintain an Overweight rating on UNH.
The analyst noted that recent pressures on UnitedHealth's stock are viewed as unwarranted. However, with several concerns surrounding UnitedHealth, including management changes, scrutiny over its Medicare Advantage segment, a potential Department of Justice investigation, and a significant cybersecurity incident, CIGNA is perceived to have clearer near-term growth visibility.
Despite these issues, UnitedHealth is still considered an attractive investment for those with a longer-term view, trading at 17.4 times next twelve months' (NTM) EPS, below its historical 10-year average.
The impact of UnitedHealth's cybersecurity incident is being closely monitored, with a preliminary analysis suggesting a potential EPS impact of up to approximately 3 cents for the year 2024, based on certain assumptions about sales growth and margins.
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