Cigna Shares Slump Over 10% on Downbeat Earnings Outlook, Analysts Cut Price Targets

Cigna shares slumped over 10% on Thursday after the Bloomfield, Connecticut-based health insurer cautioned the COVID-19 pandemic would have a greater impact on the company’s full-year earnings, prompting several analysts to cut their one-year price targets.

The U.S. health insurer said its outlook for full-year 2021 adjusted revenues is projected to be at least $170 billion. Cigna’s outlook for full-year 2021 consolidated adjusted income from operations is at least $6.96 billion, or at least $20.20 per share. This outlook includes nearly $2.50 per share in net unfavourable impacts of COVID-19.

The medical care ratio (“MCR”) rose to 85.4% for the second quarter 2021 compares to 70.5% a year ago, reflecting significantly lower medical care in second quarter 2020 due to the onset of the COVID-19 pandemic, an acceleration in the return to historical levels of utilization, the direct costs of COVID-19 testing and treatment, and the pricing effect of the repeal of the health insurance industry tax, the company said in the press release.

Following this, Cigna shares slumped over 10% to $206.21 on Thursday.

The insurance company said its total revenues in the second quarter were $43.1 billion, and adjusted revenues were at $43.1 billion Adjusted income from operations for the second quarter was $1.8 billion, or $5.24 per share, beating the Wall Street consensus estimates of $4.96 per share.

Analyst Comments

“We see two key drivers of the Cigna (CI) sell-off following its 2Q results: 1) meaningfully higher-than-expected MLR trends in FY21, and 2) implied core growth in FY22 that we calc at ~3.5% vs. mgt’s 6-8% LT average target. Utilization remains a wild card for 2H21/FY22, and rightfully so. Still, even if we assume a modest haircut to mgt’s implied FY22 EPS (we’re not), we think the risk/reward is favourable with shares now trading at 9.0-9.5xFY22 EPS. Buy,” noted David Windley, equity analyst at Jefferies.

Cigna Stock Price Forecast

Fifteen analysts who offered stock ratings for Cigna in the last three months forecast the average price in 12 months of $294.64 with a high forecast of $321.00 and a low forecast of $230.00.

The average price target represents a 42.88% change from the last price of $206.21. From those 15 analysts, 13 rated “Buy”, two “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $321 with a high of $341 under a bull scenario and $139 under the worst-case scenario. The firm gave an “Overweight” rating the life insurer’s stock.

Several other analysts have also updated their stock outlook. Mizuho slashed the stock price forecast to $267 from $290. Credit Suisse lowered the price objective to $270 from $300. Citi cut the target price to $267 from $308. JPMorgan lowered the price target to $285 from $300.

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Cigna Shares Hit New Record High After Q1 Earnings; Target Price $300 in Best Case

Cigna, a global health service company, reported better-than-expected earnings in the first quarter and lifted its full-year 2021 profit and revenue outlook, sending shares to a record high on Friday.

The Bloomfield, Connecticut-based company said its total revenues in the first quarter were $41.0 billion, and adjusted revenues were $41.0 billion. Adjusted income from operations for the first quarter was $1.7 billion, or $4.73 per share, beating the Wall Street consensus estimates of $4.37 per share.

The U.S. health insurer raised full-year 2021 adjusted revenue to at least $166 billion, up from the previous projection of at least $165 billion. Cigna expects consolidated adjusted income from operations at least $7.0 billion, or at least $20.20 per share.

Following the upbeat results, Cigna shares hit an all-time of $263.38 on Friday. The stock rose over 26% so far this year.

Cigna Stock Price Forecast

Eleven analysts who offered stock ratings for Cigna in the last three months forecast the average price in 12 months of $275.90 with a high forecast of $300.00 and a low forecast of $254.00.

The average price target represents a 7.38% increase from the last price of $256.93. Of those 11 analysts, ten rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $254 with a high of $343 under a bull scenario and $143 under the worst-case scenario. The firm gave an “Overweight” rating on the insurance company’s stock.

Several other analysts have also updated their stock outlook. Truist Securities raised the price target to $300 from $280. Jefferies lifted the price objective to $295 from $268. CFRA upped the target price by $25 to $260. Bernstein increased the target price to $263 from $242. BMO lifted the target price to $290 from $270.

Analyst Comments

Cigna is the fourth largest commercial (8% share) and exchange (3% share) player. Acquisition of ESRX creates vertically integrated player with better ability to manage medical and pharmacy spend to drive significant savings for members,” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

“Flexible balance sheet to deploy into M&A. Opportunity to upsell dental and vision ancillary services can help drive accelerated commercial penetration longer-term. Opportunity for further MA penetration remains as co. can cross-sell in areas it has a strong commercial presence.”

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Will Earnings Season Bring Volatility To The Stock Market?

The Commerce Department last week reported that the U.S. economy grew at a +6.4% annual rate in the first quarter, slightly below estimates but still strong. If it would have come in real hot and much higher bears would have pointed to fanning the inflation flames even further.

This mindset of “bad-news-could-be-good-news” is helping to keep the stock market at or near all-time highs. If economic data somewhat disappoints it means the Fed stay dovish and accommodative for longer.

Fundamental analysis

That might be important to keep in mind as April data starting this week is expected to be extremely good. The April Employment Report is due next Friday and with upper-end of Wall Street estimates look for upwards of +1 million new jobs being added. Other key April data next week includes the ISM Manufacturing Index on Monday, and the ISM Non-Manufacturing Index on Wednesday.

employment

If the data comes in better than expected the bears will win the nearby battle and have the upper hand when talking higher inflation and the Fed perhaps tightening sooner than anticipated. So this week could be a bit tricky whereas “disappointing-data” could actually be digested as a win for the bulls and “strong data” a win for the bears.

The earnings calendar is packed again next week with big names including Activision Blizzard, Adidas, AllState, Cerner, Cigna, CVS, Dominion Energy, Enbridge, Etsy, Hilton Worldwide, Moderna, Monster Beverage, Nintendo, PayPal, Peloton, Pfizer, Rocket Companies, Square, TMobile, Wayfair, and Zoetis.

COVID-19

Checking in on U.S. progress against Covid-19, the number of adults that have received at least one dose is around 60%-65%, depending on the source. Global cases continue to rise led by India, where new infections have been hitting new record highs every day for weeks now. The country reported a staggering 380k new infections and 3,645 new deaths on Thursday while less than 10% of the population has been vaccinated.

Bottom line, the global restart will not be synchronized like many bulls had hoped would be the case and global growth may continue to struggle. At the moment the U.S. market doesn’t seem to care. It will be interesting to see if increasing inflation and continued global headwinds will eventually come home to roost.

SP500 technical analysis

SP500 earnings season

Earnings season can bring volatility to the stock market. At the beginning of May, cycles turn to the downside. Note, this is only a timing tool and it never shows the amplitude or strength of the move. When cycles are topping, it means we can expect a move down or choppy trading. This is it.

But relying on cycles only is not a good idea. Insider Accumulation Index shows bearish divergence on a daily chart. At the same time, Advanced Decline Line is still strong. The key resistance is around 4250 at the moment. I believe earning season can bring a profit booking to the stock market. If that happens, watch 4000 – 39500. It was a massive resistance and now it might turn into support. Intermarket Forecast is neutral. But if it turns to the downside, we will finally see a pullback in SP500.

For a look at all of today’s economic events, check out our economic calendar.