Should You Buy This Fast-Growing Blue Chip Stock?
Picking big companies operating in big, growing industries is as close as it gets to a surefire way to create massive wealth.
Due to the increase in health insurance adoption rates, the health insurance industry is expected to continue to do well. In fact, market research firm Global Market Insights expects the global health insurance market to grow at an annual rate of 4.6%, from $2.8 trillion in 2020 to $3.9 trillion. billion by 2027.
As the fourth largest health insurer in the world with a market capitalization of $84 billion, Cigna (IC 1.07%) will be one of the main beneficiaries of the growing demand for health insurance. But does that make the stock a buy right now? Let’s look at Cigna’s fundamentals and valuation to find out.
Perpetually outperforming the Wall Street consensus
In early May, Cigna released its first quarter results for the period ended March 31. The company managed to beat analysts’ net revenue estimates and non-GAAP (adjusted) estimates of diluted earnings per share (EPS) for the quarter.
Cigna reported net revenue of $44 billion in the first quarter, up 7.4% from a year earlier. That beat analyst consensus of $43.5 billion in net revenue for the quarter. How the health insurer beat analyst’s net revenue forecast for 10e quarter of the last 10 quarters?
Cigna’s increase in net revenue in the quarter was the result of a 7.2% year-over-year growth in its total number of customer relationships to 190.4 million. Except for the company’s U.S. government customer base and Medicare Part D customer base, all other business segments added customers, including pharmacy, medical, behavioral care and dental care. .
Cigna recorded adjusted diluted EPS of $6.01 in the first quarter, a gain of 27.1% over the same period a year earlier. This blew analysts’ consensus forecast of $5.13 out of the water. So what led the company to beat analysts’ earnings forecasts for the ninth quarter of the last 10 quarters?
Cigna’s non-GAAP net margin increased 30 basis points year over year to 4.4% in the first quarter. The other catalyst that made Cigna’s earnings growth outpace its net sales growth was an 8.7% reduction in the company’s weighted average number of shares to 321.3 million. for the quarter.
Analysts expect Cigna’s double-digit earnings growth to continue over the medium term with annual earnings growth of 11.5% forecast for the next five years. This will likely be due to increased demand for the company’s insurance products and its share buyback program.
A dividend above the market with growth potential
Cigna offers investors a dividend yield of 1.7%, which is slightly higher than the S&P500 return of 1.6% of the index. But what really makes the company’s dividend attractive is its future growth potential.
Indeed, Cigna’s dividend payout ratio is expected to be just under 20% in 2022. This gives the company great flexibility to increase its dividend moderately ahead of earnings in future years. Coupled with its potential annual earnings growth of 11.5%, it wouldn’t be unreasonable for the company to offer lower-than-teen annual dividend growth for the foreseeable future.
The stock is priced at a very cheap valuation
Cigna is a fundamentally sound company. And the valuation of the title does not seem to fully reflect this reality.
This is evidenced by Cigna’s price-to-earnings (P/E) ratio of 10.9, which is significantly lower than the healthcare plan industry’s average P/E ratio of 16. This is why Cigna appears to be an excellent growth stock for investors. consider buying.
Kody Kester has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.