Cigna vs Costco Stock: Which Is Best?

Cigna and Costco don’t usually go hand in hand but both can be considered defensive stocks to consider when the economy runs into choppy water.

The two companies are very different from each other in almost all respects, except for the fact that they are both highly established businesses with significant market reach, and consumers demand their services out of necessity.

Both the companies’ stocks are now trading at premium price tags, which deservedly should make investors somewhat cautious before dipping a toe in either pond. We examine them to see which is the better bet.

Health Insurance Giant Cigna Has Massive Upside

Health insurance has been a hot topic in recent times. After the brutal shooting of UnitedHealthcare’s CEO Brian Thompson, the health insurance industry in the U.S. has faced mixed reactions. A large number of people have pointed out how health insurance claimants faced negative experiences with insurers and delayed and denied claims.

The spotlight has now shifted towards the holes in the health insurance space and the big names, including UnitedHealthcare, CVS Health, and the company in question, The Cigna Group (NYSE:CI). Over the past three months, Cigna’s share price has declined by close to 20%.

Before the headlines faded entirely, news came out that the U.S. Federal Trade Commission (FTC) found that the country’s three largest pharmacy benefit managers (UnitedHealth Group’s Optum, CVS Health’s CVS Caremark, and Cigna’s Express Scripts) marked prices up at their pharmacies and earned a $7.3 billion in revenue. The report was termed as “misleading” by Express Scripts.

The FTC had already sued the PBMs back in September, accusing them of leading customers into buying higher-priced insulin. This accusation was also denied by the companies in question. In short, there’s a lot going on with the health insurance space at the moment. Yet, the insurance is essential and so the demand will always be high, even though the atmosphere right now is tepid.

Despite being the subject of regulatory hot water, Cigna is coasting along at a steady pace financially. The company’s third quarter results for fiscal 2024 revealed a 30% leap from the prior year’s period to $63.69 billion of revenues.

Cigna is highly profitable, too, and reported $2.11 billion in adjusted income from operations (or $7.51 on a per-share basis). The end result was a growth rate of 5% year-over-year (or 11% for the per-share IFO). Both the top and bottom-line figures are better than what analysts were expecting, which shows that there might be some surprises left in Cigna.

From an analyst perspective, Cigna has upside potential to $391.12 per share according to 24 analysts, which if realized would translate to an enormous 39.7% gain for newly minted shareholders.

Bulk Consumer Staple King Costco 

Costco Wholesale Corporation (NASDAQ:COST) is relied on heavily by U.S. customers to buy products in bulk. Its unique business model that features memberships to warehouses and e-commerce platforms has been a hit for decades. The company was started in the 1970s, but back then, it only served small businesses. By the 1980s, it started catering to individual customers.

Costco is best known for providing products at rock bottom prices, however to stay competitive while doing so, the company relies on a membership-based model that charges fees to shop at Costco. Consumers can buy products from its website without a membership card, but only non-members usually pay higher prices.

Its membership comes in three tiers, and last year, for the first time in seven years, the company raised its membership fees. Its Gold Star and Business tiers both went up by $5 to $65, while the most premium Executive tier jumped by $10 to $130.

The new fee structure came into effect on September 1, 2024. Looking at the monthly sales figures, there was a little bit of a dip in the growth following the incorporation of the new fees. In the September retail month, sales grew by 9% year-over-year, 7.2% in October, and 5.6% in November.

In the final month of the year, U.S. retail sales were boosted by clothing and accessory sales and the inclusion of the gains from Thanksgiving shopping.

Despite investors being pressed and value-conscious, they looked willing to spend. Costco was not alien to this gain. For the month of December, management reported a 9.9% year-over-year growth in monthly sales.

Most recently, in its first quarterly results for fiscal 2025 (the quarter ended in November 2024) management reported an 8% increase in its revenue from the prior year’s period to $62.15 billion. Membership fees are only about 2% of the top line total, while sales make up the rest but they represent a substantial 73% portion of profits.

Warehouse openings have been a key driver of sales. Costco currently operates 897 warehouses, with a majority of them inside the U.S but the top brass expects this count to reach 916 by the end of the fiscal year 2025.

Costco enjoys a 90.4% membership renewal rate globally, while this climbs to 92.8% in the U.S. and Canada. For the first fiscal quarter, the company’s total number of cardholders increased by 7.2%.

The company is one of the most reliable investment options at the moment and, over the past year, COST share price has gained close to 35%. If the last holiday season sales are any indication, growth might spike for the fiscal second quarter and beyond.

From value investors there is lots to admire with analysts seeing upside opportunity to $1,018 per share, representing a potential 15.1% gain from present levels though admittedly a discounted cash flow forecast presents a more tempered outlook with risk to $715 per share.

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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.