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Changes To Workbook/Report/Slides
• Made changes to forecasts and models in the workbook
• Added photos, graphs, appendices and references in the report
Investment Thesis
Price (On Submission) Growth in
$333.37 Specialty and
Care Services
Price (On Pitch) Recommendation
$337.90
Strategic
Intrinsic Value: Partnerships and
$360.11 HOLD Investments
Margin of Safety:
Rising Costs of
6.6%
Healthcare
Cigna's strong financial position and promising future prospects provide stability to a portfolio. The company's
commitment to dividends ensures long-term income for investors. Given these strengths, Cigna is
recommended as a hold in our large-cap portfolio.
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Company Overview
Company Overview
Summary
Sources: Proxy Statement, Yahoo Finance
Sector: Healthcare Top Management Board of Directors
Industry: Health/Insurance David Cordani David Cordani: Chairman
President, CEO & Chair of the
Market Cap: $95.81B Board
Independent Board Members:
Brian Evanko • Sysco Corporation
Executive VP, CFO and • Aramark
President of Cigna Healthcare • The 5Ps LLC
ISS Governance QualityScore • The Charles Schwab Corporation
Eric Palmer • Net App Inc
• Audit: 2 Executive Vice President of • Baker Hughes Company
• Board: 4 Enterprise Strategy • Graybar Electric Company Inc
• Shareholder Rights: 7 • Duke-Robert J. Margolis, M.D., Center
• Compensation: 7 for Health Policy
Ms. Noelle K. Eder
• Overall: 5 • Montefiore Medicine
Executive VP & Global Chief • The Economic Club of Chicago
Information Officer
Company Overview
Recent News & Corporate Guidance Sources: Quarterly Report, PR Newswire
● The Cigna Group Reports Strong First Quarter 2024 Results, Raises 2024 Outlook | May 2nd
● Strong first-quarter 2024 results driven by growth in Evernorth and Cigna Healthcare businesses.
● Adjusted income from operations increased to $1.9 billion or $6.47 per share, with full-year 2024 revenue projected
to reach at least $235.0 billion and adjusted income from operations expected to be at least $8.065 billion.
● The Cigna Group to Sell Medicare Businesses and CareAllies to Health Care Service
Corporation (HCSC) | Jan 31st
● The Cigna Group will sell its Medicare Advantage, Cigna Supplemental Benefits, Medicare Part D, and CareAllies
businesses to Health Care Service Corporation (HCSC) for approximately $3.7 billion, with the transaction expected
to close in Q1 2025.
● A four-year services agreement will see Evernorth Health Services continue to provide pharmacy benefit services to
the Medicare businesses, aligning with Cigna's strategy to focus on growth in its Evernorth Health Services and Cigna
Healthcare portfolios.
Company Overview
Business Segments
Sources: The Cigna Group 10-K Report
Incorporated in Delaware, ● Evernorth – FY 2023 - $153.5B
Headquarters in Bloomfield, ● Core segment
Connecticut ● Offers PBM services, Specialty and Care Service, Behavioral
and Virtual Services, Home –based care and home delivery
services
● Cigna Healthcare – FY 2023 - $51.2B
● U.S. Healthcare and International Health
● Medicare businesses – held for sales
● Corporate and Other – FY 2023 - $596M
● Corporate owned life insurance – employer sponsored life
insurance contracts to select employees
Company Overview
Revenue Segments
Sources: The Cigna Group 10-K Report
● Pharmacy Revenues – $137.2B
● Revenue from Pharmacy benefit services, specialty pharmacy
services, retail and home delivery services
● Premiums – $44.2B
● Premiums from health, accident, life insurance and managed
care
● Fees and Other Revenues – $12.6B
● Insurance administrative services fee, formulary
management, pharmacy benefit, specialty solutions
Company Overview
Regions Covered
Sources: Annual Report
● Market Presence
● 10% market share in the U.S. health insurance market.
● Top 4 largest insurers by market share
● Presence in 14 states in the ACA Market
● 11% market share in prescription drug market
Industry Overview
Industry Overview
SWOT Analysis
Sources: Yahoo Finance
Strengths Weaknesses
• Reputation • Dependency on the U.S.
• Financial performance • Ethical dilemma
• Innovative solutions • Highly regulated industry
• Strategic partnerships
Opportunities Threats
• Expansion into new markets • Regulatory compliance
• Rise in demand for • Intense competition
healthcare • Economic conditions and
• Acquisitions & Partnerships inflation
Catalysts and Risks
Catalyst 1
Growth in Specialty and Care Services Sources: Cigna Newsroom
● Growing demand for Specialty and Care services
● Aging population
● 2-3% of population has specialty condition
● Specialty drug are expected to double their market size
● Cigna Capabilities
● Accredo – provides specialty pharmacy services to patients
● CuraScriptSD – Specialty pharmacy distributor to providers
● Well positioned to capture the market
Catalyst 2
Strategic Partnerships and Investments Sources: Cigna Newsroom
● Express Scripts and Cigna PBM deal
● Largest is PBM industry
● Increased Market Power – higher rebates and revenue in
administrative fees
● Market Consolidation
● Minority acquisition in CarepathRx
● Extensive market reach to 700 hospitals and health systems
● Competitive advantage in specialty care services
Catalyst 3
Rising Costs of Healthcare Sources: Health System Tracker
● Primarily caused by increase in costs of prescription
drugs
● Pharmacy benefit services and Insurances are a
necessity in this scope
Risks
Possible Downfalls Sources: Annual Report, Cigna Newsroom
● Failure to reach strategic partnerships
● Healthcare insurance industry is increasing becoming consolidated
● Such failure not only impacts the market share but also future growth prospects
● Rising Costs of HealthcareU.S. Healthcare Market
● A double-edged sword
● Escalating healthcare costs would translate into premiums but also imply costs on the company.
● Failure in managing the costs would not only damage company’s financial performance, but also its
credibility in providing affordable healthcare
Valuations
Valuation
Discounted Cash Flows (DCF): 50%
CAPM Assumptions
● Beta was calculated using 5 year monthly
Beta 0.54
Risk Premium 4.6% ● The selected beta aligns with Cigna's risk profile and
Risk-Free Rate (30 year) 4.6% aligns with industry consensus
● Risk-free rate: NYU Stern
WACC Assumptions
Cost of Equity 7.0%
● 30-year bonds with 4.6% yield
Cost of Debt 5.9% ● EV/EBITDA model
Cost of Capital 6.5%
Intrinsic Value: $543.03
MoS: 60.7%
Valuation
Historical Model: 20%
Metric Weights Components Reasoning
50% EV/EBITDA Both 3 year and 5 year data used To avoid outlier from 2020
50% Price to Earnings
Operational efficiency
Profitability
Intrinsic Value: $110.94
MoS: (67.2)%
Valuation
Relative Model: 20%
Metric Weights Competitors Used Reasoning
30% P/E (ttm) UnitedHealth Group Similar service offerings and operations
70% EV/EBITDA(ttm) CVS Health Corporation Similar Target Market
Humana Inc Efficient comparable metrics
Intrinsic Value: $318.16
MoS: (5.8)%
Valuation
Dividend Discount Model: 10%
Reasoning
● The company has a history of
dividend payments
● The company expressed its
commitments to dividend
payments and distribute the
increasing profit with
shareholders
Intrinsic Value: $27.81
MoS: 91.8%
Valuation
Portfolio Recommendation
● We do not currently hold Cigna
Industry: Healthcare
Industry Weight: (0.29)%
● Provides the opportunity to buy around 1-2% for Slightly Undervalued
large-cap
● Cigna is financially strong and has a very attractive
dividend
Conclusion
Price (On Submission) Growth in
$333.37 Specialty and
Care Services
Price (On Pitch) Recommendation
$337.90
Strategic
Intrinsic Value: Partnerships and
$360.11 BUY Investments
Margin of Safety:
Rising Costs of
6.6%
Healthcare
Cigna continues its solid financial standing, coupled with future growth prospects, and commitment to paying
dividends. Given these catalysts, Cigna is recommended as a hold in our large-cap portfolio.
Questions?
Appendix
Appendix
Appendix
Appendix
Appendix
Appendix
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