Bank of America double downgrades Cigna Corp to ‘underperform’

on Sep 10, 2021
  • BofA's Kevin Fischbeck cuts his price target on Cigna from $240 to $225.
  • The analyst cites no bullish catalyst & limited financial visibility for dovish call.
  • Fischbeck says Cigna’s end-market growth rate is the lowest in its league.

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Shares of Cigna Corp (NYSE: CI) are down more than 20% from their year-to-date high in May, and the Bank of America says the prospect of a swift recovery is not very bright either.

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In a note on Friday, BofA’s Kevin Fischbeck double downgraded Cigna to “underperform” with a price target of $225 that represents an about 10% upside from here. The analyst previously had a PT of $240 on the stock.

Reasons for the dovish call

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Fischbeck warned that Cigna lacks a catalyst that could lay the groundwork for a move up in the near term. Other reasons he cited for the dovish call include no meaningful valuation upside and limited financial visibility.

“CI has now integrated ESRX successfully, de-levered the business and sold off underperforming units, but the growth outlook from here is less clear, in our view,” he wrote.

According to Fischbeck, Cigna reported a medical loss ratio in its fiscal second quarter that fell shy of estimates by the broadest margin compared to the other five managed care organizations that he covers. The MLR risk, the analyst added, remains in place for the current quarter (Q3) as well.

Fischbeck trimmed his EPS target for Cigna

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On top of that, Cigna’s end-market growth rate is the lowest in its league, Fischbeck added. He warned that the consensus estimate for the company’s EPS in 2022 is “too high” and trimmed his own EPS target for 2021, 2022, and 2023.

The stock might look attractive, considering its 10.1 forward earnings ratio, but the analyst highlighted that Cigna was trading “in-line with its historical earnings multiple since it closed its Express Scripts deal.”

Morgan Stanley and Raymond James, on the other hand, continue to believe that CI is a “buy”. Shares of the $70 billion company are down close to 5.0% on Friday.

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