Cigna has been treading water for the past six months, recording a small loss of 3.5% while holding steady at $278.80. The stock also fell short of the S&P 500’s 10.8% gain during that period.
Given the weaker price action, is now a good time to buy CI? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.
Why Does CI Stock Spark Debate?
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE: CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Two Things to Like:
1. Long-Term Revenue Growth Shows Momentum
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Cigna grew its sales at a decent 11.1% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
2. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $282.1 billion in revenue over the past 12 months, Cigna is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.
One Reason to Be Careful:
Declining Customer Base Reflects Product and Sales Weakness
Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.
Cigna’s total customers came in at 16.68 million in the latest quarter, and over the last two years, their count averaged 8.1% year-on-year declines. This performance was underwhelming and shows the company lost deals and renewals. It also suggests there may be increasing competition or market saturation. 
Final Judgment
Cigna’s merits more than compensate for its flaws. With its shares lagging the market recently, the stock trades at 8.8× forward P/E (or $278.80 per share). Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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