Standing out among the Street's worst performers today is Cigna, a medical specialities company whose shares slumped -5.0% to a price of $295.75, 25.88% below its average analyst target price of $399.0. CI lagged the S&P 500 index by -6.0% so far today and by -23.4% over the last year, returning 4.8%.
The Cigna Group, together with its subsidiaries, provides insurance and related products and services in the United States. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
Cigna's trailing 12 month P/E ratio is 28.0, based on its trailing EPS of $10.56. The company has a forward P/E ratio of 9.4 according to its forward EPS of $31.32 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 26.07, and the average for the S&P 500 is 29.3.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Cigna's free cash flow, which was $11.81 Billion as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $8.1 Billion and they've been growing at an average rate of 15.1%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in CI have received an annualized dividend yield of 1.7% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Cigna's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.96, but is still below the average P/B ratio of the Health Care sector, which stood at 3.53 as of the third quarter of 2024.
Since it has an average P/E ratio, a lower P/B ratio than its sector average, and generally positive cash flows with an upwards trend, Cigna is likely undervalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and decent operating margins with a negative growth trend. We hope you enjoyed this overview of CI's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
