Cigna (CI) Stock | Long Term Analysis | Overvalued or Undervalued |

Transcript (auto-generated)

All right hello and welcome everybody to another stock analysis where today we’re talking about cigna corporation ticker symbol ci and this company is traded on the new york stock exchange and in this video i want to talk about how this company generates its income i want to determine whether the stock is overvalued undervalued or fair value i also want to give a full long-term analysis on the business so what does that entail we will give you a general overview of cigna discussing what it does etc we will discuss the industry and its growth potential and we will discuss intrinsic value book value then income price earnings stock buybacks and dividends and all the other important tangles the when projecting the growth of a company and determining the true value of the stock anyway if you like this video please do like and subscribe as it does up our channel and it allows us to get this content out to more people so that more people can understand how ci works and also how the other stocks that we talk about work as well on our channel anyway thank you so much for watching without further ado let’s get started

so how does ci work well to keep things simple cigna is a us corporation that works in the health industry and profits primarily off of two sectors they offer pbm services which i’ll talk about in a moment and they offer insurance plans for employers and individuals cigna’s pbm business is spectacular with their 2018 67 billion dollar merger with express scripts now you might be wondering what does pbm actually do well a pbm’s job is to negotiate with drug makers to lower the cost of drugs for example if you were sick you could get a prescription written up by your doctor then the pharmacy you plan to pick up your prescription at whether that be cbs walgreens or another pharmacy will submit a claim to your pbm which will negotiate the cost of the drug then you pay a copay for the drug that you pick up at your local pharmacy pms will also research and recommend generic drugs over brand drugs if they are more affordable and as effective as the brand name drug this generic can then be added to the pbm’s list of recommended drugs or a formulary now how do pbms such as express scripts make money well for one an insurance company can pay a pbm to help lower its cost of drugs to save money manufacturers will also pay pbms through rebates or discounts for preferred placement on the pbm’s formulary after the pbm negotiates drug prices with the manufacturer also pbms can charge pharmacies administration and dir fees also known as direct and indirect remuneration fees for their negotiations now based on revenue if we take a look to our right we can see that this pbm segment brings in a large portion of the company’s revenue relative to its other services as evernorth is just express scripts but renamed lastly cigna is a large cap company with a market cap of 75 billion dollars and it was founded in 1982 although cigna health insurance can date back to over 200 years ago

now let’s analyze the industry to start with pbm controlling such a large portion of cygnus revenue i wanted to cover cigna’s standing and growth in this field first 85 of americans are covered by a pbm such as caremark express scripts or optum rx and other pbms as well this service is very important as without them there wouldn’t be anybody negotiating with a drug maker to reduce the cost of a pill that you may need to buy regularly based on your health needs this service is offered through health insurance and cigna has a very strong standing in this field as well we can see at the bottom left that cigna controls a large portion of the pbm market share by its total equivalent prescription claims managed based on the 2020 data also over the past few years pbms have been charging increasingly steep dir fees for pharmacies and attempt to increase earnings if this trend were to continue it would justify a growth in earnings for pbm spanifying cigna as a result and a brief fact cbs united health and cigna control 80 of the us annual prescription volume through pbm services lastly the health care insurance business is growing i understand that market size can be rather subjective but health insurance has been growing based on an increase in medical costs inflation increasing population and many other factors

cigna’s price to book is low relative to other companies in this field currently cigna rocks a price to book of 1.59 and compared to united health which has a pb of 6.42 cigna has a substantially lower pb remember lower is better

and for the price earnings we have the same situation the pe is quite low for cigna at 9.63 and for united health it is 30.99 the dow p currently is about 22 while sigma trades at a relatively low price nearings of 9.63 this is also low compared to past pes for the company and that can also help to suggest that there is an undervaluation of the business on the stock market

in terms of the intrinsic value the company seems to offer an upside of 14 after projecting the next 10 years of discounted cash flow from the past 10 years of the cash flows with a perpetual growth rate of 2.5 and a discount rate of 8.5 the company has an intrinsic value of 263 dollars and 78 cents relative to a recent closing price of about 230 dollars

i also want to note the company’s earnings as their free cash flow epdah and net income appear to be steadily increasing due to the growing business after their merger with express scripts and this company is well positioned to perform during a pandemic and has been steady and offering value to its shareholders throughout the covent 19 pandemic

the company buys back its own stock reducing the outstanding shares of the company these shares outstanding did increase briefly however due to the 2018 67 billion merger with express scripts the company has been willing to repurchase stock after this merger though and this benefits the shareholders as it increases the company’s shareholder value the book value increases and the intrinsic value increases as there are less outstanding shares in the market however this should only happen when the stock is believed to be undervalued because the money can otherwise be reinvested back into the company for growth research and acquisitions instead this also goes for dividends the company currently pays a dividend equivalent to a 1.74 annual yield with a quarterly dividend of one dollar per quarter so four dollars per share per year this is great as the company is trying to distribute some extra funds to their shareholders like i mentioned earlier the company could reinvest this money however they are clearly determined that this money is extra and can be distributed to the shareholders without harm to the business so overall what do we think about cigna cigna appears to be a bit undervalued at the time of recording in our view due to a relatively low price earnings and an intrinsic value above the current trading value of the company’s stock over the long term we expect the earnings of ci to grow steadily with the growing pbm and insurance industry which i think will do fine over periods of high inflation this company offers a relatively safe dividend and consistent stock buybacks that grow shareholder value over the long term i am not a financial advisor or anything like that and this is not financial advice so please do your own research before investing anyway thank you so much for watching if you like this field and you want to see more content like this please do like and subscribe as it does about our channel and please come down below and tell us what you think about this company and we’ll try to get back to you anyway thanks again for watching have a great day everybody.