What Stock Is Up BIG In A Down Market?

Having reported steady growth in its revenue and profits in recent years, Cigna is now in a solid financial position going forward.

 

Indeed, the company’s adjusted EPS has risen at a compounded annual growth rate of 15% since 2010, while a significant portion of its sales derives from extremely predictable sources, such as the U.S. government and other attractive markets.

 

This situation was recently reaffirmed by way of CI’s robust third-quarter earnings sheet. The business saw its top line improve by $992 million to bring in total revenues of $45.3 billion, with operating income up 3% after considering the divestiture of its Medicaid and accident and supplemental segment operations.

 

Importantly, the firm’s medical cost ratio dropped 270 basis points to 80.8%, reflecting an effective pricing and affordability strategy in its U.S. Commercial business too.

 

However, the most pleasing thing from an investor’s point of view is the way that Cigna generates value for its shareholders base. For example, CI’s dividend has grown at an average of 382% yearly for the last three years, while its distribution is well covered with a payout ratio of 18.9%.

 

Moreover, the company has repurchased roughly 22 million shares this year. It is also expected to spend 80% of its $50 billion cash flow from operations on further dividends, debt repayments, and additional buybacks between now and 2026.

With such a huge price appreciation this year, it’s clear that investors see something in the company that they’re not getting elsewhere. Consequently, with the rest of the market selling off to the tune of 20% in 2022, it looks like CI has captured a lot of the money flowing out of those other, less favored businesses.

 

In fact, there are several reasons why shareholders are choosing to rotate out of riskier assets and into defensive options just now.

 

For instance, the broader economic outlook remains highly uncertain, and, with concerns surrounding deteriorating stability, investors are taking action to protect their capital reserves. Given that healthcare stocks are often seen as more resilient and less vulnerable to economic downturns, it’s only natural that people would allocate more of their portfolio to these types of stocks during times of financial volatility.

 

Other factors influencing investor behavior are the ongoing hikes to interest rates. Indeed, when interest rates are high – as they are today – the discount rate used to calculate the present value of future cash flows is also high.

 

This leads to a decrease in the present value of future cash flows and, therefore, a decrease in the value of assets that generate those cash flows. As a result, investors may be more inclined to choose companies like Cigna, which are less sensitive to interest rates and may be less affected by changes in valuation.

 

As the healthcare landscape continues to evolve, the way that patients receive care also adapts. Telemedicine is one of the most exciting growth trends of recent years, and Cigna is at the forefront of this revolution.

 

In fact, virtual healthcare allows patients to receive medical attention from a remote location, whether at home or in the office. This cost-effective solution has increased access to care for many patients, who may otherwise struggle to see a doctor due to geographical location or a shortage of providers. Moreover, telemedicine has been shown to improve outcomes by enabling timely interventions and frequent monitoring.

 

Indeed, CI’s own telehealth offering, MDLIVE, is a platform that allows its customers to connect with healthcare professionals – including doctors, therapists, and other specialists – via videoconference or phone.

 

Through MDLIVE, Cigna customers can receive treatment for various conditions, including minor illnesses, allergies, and mental health issues. In addition, by providing access to experts outside of traditional office hours, MDLIVE can help to reduce wait times and improve the overall patient experience.

 

For investors in companies like Cigna, the rise in “alternative sites of care” is one of the forces reshaping the industry, presenting several lucrative opportunities. For instance, as telemedicine becomes more prevalent, demand for these services will likely increase. This could lead to increased revenue and an improved bottom line.

 

On top of that, telemedicine is also likely to be a more cost-effective option for many patients, eliminating the need for in-person visits and potentially reducing the need for expensive diagnostic tests. This can result in lower costs for healthcare companies and potentially higher profits.

 

Furthermore, remote screening will improve outcomes by providing timely access to care, enabling patients to receive consultations and interventions in the comfort of their own homes. This will create greater efficiency – and potentially higher returns for healthcare companies in the process.