Anthem Stock Vs Cigna: Which Is Best?

Anthem Stock Vs Cigna: In mid-2015, Anthem and Cigna had nothing but good things to say about each other – at least in public. Anthem planned to acquire Cigna in a $47 billion deal that would have created a massive enterprise.

Unfortunately, the merger met with disapproval from the Justice Department, and the deal failed in 2017. That prompted years of legal battles in which each company blamed the other for related financial losses. 

In August of 2020, the most recent case came to a close. Neither company prevailed. Cigna was not awarded the $15 billion it said Anthem owed for termination fees and damages, and Anthem was not awarded the $21 billion it said Cigna owed for failing to fight the Justice Department’s ruling. 

With that bit of drama in the past – for now – management and shareholders can turn their attention to current events.

What Now For Anthem and Cigna?

That’s a good thing, because the health insurance industry as a whole is under pressure from every direction. Developing a strong strategic plan is a must amid such uncertainty. 

The COVID-19 pandemic has put insurers in the position of covering hefty bills associated with emergency intensive care. Meanwhile, years of political turmoil in the US have created an environment in which healthcare policy decisions can’t be relied upon to remain static from one year to the next.

Anthem, Cigna, and others in the industry are struggling to stay one step ahead while still protecting profits and patients. 

Investors know that healthcare is a promising area from a profit perspective, but pinpointing which company is least likely to run into regulatory or public relations trouble is a tough call. In a matchup between two industry leaders, the question is: Anthem stock vs Cigna – which is best?

Is Anthem Stock A Buy?

Anthem is a leading commercial health benefits company. It uses a network-based model with plans designed for individuals and employers of all sizes.

Anthem participates in Medicaid and Medicare, and it serves roughly 107 million people. It has more than 43 million members in its health plans. 

While it isn’t the largest in the industry – that honor belongs to UnitedHealth – Anthem is growing.

Revenues have been trending up for the past nine consecutive years, and by all indications, this year will be the tenth.

In particular, Anthem is successfully adding members to its Medicaid and Medicare plans, which delivered an additional 1.6 million participants for third quarter 2020. That makes an increase of four percent year-over-year. 

Anthem offers a reliable dividend that currently yields 1.37 percent. That includes an increase of 18.8 percent in 2020, bringing the total to $0.90 per share.

While Anthem isn’t in Dividend Aristocrat territory yet, this latest payout marks its tenth consecutive year of dividend increases. Most analysts believe this demonstrates the company’s commitment to its shareholders, which makes Anthem stock a buy. 

Should You Invest in Cigna?

While there are several businesses under the Cigna umbrella, at its core, Cigna is a health insurance company.

For the third quarter of 2020, the company reported a total of 86.6 million pharmacy customers, which represents a year-to-date increase of 10.7 million.

Medical insurance members total 17 million, which is a slight decrease year-to-date. Third-quarter revenues came in at $41 billion, and net income totaled $1.4 billion. That translates to $3.78 per share, which is a year-over-year increase of $3.57 per share. 

Cigna saw massive wins in 2019 that tripled its revenue as compared to 2018. The 2019 revenue came in at $153.7 billion total, and it appears the company will at least match that figure in 2020.

At the close of the third quarter, business leaders projected full-year revenues of approximately $158 billion. If revenues exceed $153.7 billion for 2020, Cigna can boast ten consecutive years of revenue growth. 

Cigna has projected $5.8 billion in net income for 2020, and considering the volatility of the current environment, that’s a solid number. Nonetheless, share prices are down somewhat, which some analysts believe is a great opportunity for value investors to grab a bargain. 

The primary downside to Cigna stock is that its dividend is really nothing to speak of. The company pays $0.04 per year – a figure that has been constant since 2013. That calculates to a yield of 0.02 percent. 

Downsides Of Buying Anthem Stock?

The day after the election, Anthem’s stock price went up by 12 percent, and Cigna’s increased by 15 percent. Industry analysts are confident that this is no coincidence. On that date, it was clear that Democrats would retain their majority in the House of Representatives, and by all appearances, Republicans would have a Senate majority. 

The health insurance industry benefits from a divided Congress, because there is less of a chance that the two sides will agree on and pass sweeping policy changes. However, since this post-election rally, the country discovered that control of the Senate is not, in fact, decided. 

Two Georgia races were too close to call, and a runoff election is scheduled for January. If both Democratic candidates win and Democrats gain control of the Senate, it is likely that shares of health insurance companies will lose value.

Shareholders will worry that some sort of reform is in the making, which might have a negative impact on health insurers. 

Worries Ahead For Cigna Investors?

In addition to the potential impact of politics on Anthem and Cigna stock, both companies also face uncertainty from the pandemic. While health insurers are paying out for COVID-related care, they have seen a massive drop in other types of claims.

Patients are putting off preventative care and elective procedures, sometimes because they want to avoid settings where COVID can spread, and other times because stressed healthcare facilities have postponed such procedures.

Anthem and Cigna have used some of that savings to give back to their members and their communities. 

When the pandemic is finally extinguished, pent-up demand for medical services may be very costly for health insurance companies. Even more alarming is the possibility that patients who put off preventative care, disease screening, and testing will be diagnosed with conditions that are far more advanced.

The costs associated with these outcomes can’t yet be predicted, but there is a real possibility that they will be high. That means danger when it comes to investing in Cigna, Anthem, and any of their industry peers. 

Cigna Vs Anthem Stock: The Bottom Line

Most experts agree that this isn’t a great time to add shares from multiple health insurance companies to your portfolio – but one or two solid buys are a smart way to add more diversity. 

It’s best to choose the stock that best reflects your financial goals. Both Cigna and Anthem are relatively inexpensive from a price-to-earnings perspective, so either makes sense for value investors. Cigna leads in revenue growth, while Anthem’s dividend is far more robust. Your final decision should be based on which of these elements is your top priority. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.