Insurance company

This health insurance company is probably a better choice than UnitedHealth stocks

We believe that Cigna Stock (NYSE: CI) is currently a better choice than UnitedHealth Stock (NYSE: UNH), given its better outlook. Although Cigna
trades at a comparatively lower valuation of 0.5x trailing revenue, compared to 1.6x for UnitedHealth, this valuation gap makes sense, given the latter’s better profitability and lower financial risk. In terms of stock returns, CI stock, with returns of 23% this year, has significantly outperformed UNH stock, which has risen only 3%. Both stocks have fared better than broader indexes, with the S&P 500 index falling 17% over the period. There’s more to the comparison, and in the sections below, we explain why we believe CI stocks will outperform UNH stocks over the next three years. We compare a host of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis of UnitedHealth vs. Cigna: Which stock is a better bet? Parts of the analysis are summarized below.

1. Cigna’s revenue growth in recent years has been stronger

  • Both companies have managed to post sales growth in recent quarters, but UnitedHealth has seen relatively faster revenue growth of 12.7% in the last twelve months, compared to 7.6% for Cigna.
  • However, if we look at a longer time frame, Cigna fared better. While UnitedHealth sales increased at an 8.4% CAGR to $287.6 billion in 2021 from $226.2 billion in 2018, Cigna saw revenue grow at a average growth of 76.2% to reach 174.1 billion dollars against 48.7 billion dollars over the same period.
  • Cigna’s surge in revenue can be attributed to its acquisition of Express Scripts in December 2018.
  • Lately, Cigna is seeing an increase in pharmacy management activity, driven by brand name drug inflation and increased claims volume. The company also saw an increase in the total number of medical customers to 17.8 million currently, from 17.1 million in 2019, before the pandemic.
  • For UnitedHealth, revenue growth was partly driven by increased demand for its OptumHealth business, which provides health care through local medical groups. As a reminder, OptumHealth’s revenue increased by 124% between 2018 and 2021, compared to a 30% increase in revenue for the entire company.
  • The strong growth in Optum Health’s business can be attributed to an increase in the number of patients served under the company’s value-based agreements, including in-home services.
  • The total number of medical enrollments at UnitedHealth is also on the rise, currently standing at 51.2 million, compared to 49.2 million in 2019, before the pandemic.
  • Our UnitedHealth Recipes and Cigna revenue dashboards provide more detail on business segments.
  • Going forward, Cigna’s revenue is expected to grow faster than UnitedHealth’s over the next three years. The table below summarizes our revenue forecasts for both companies over the next three years. It shows a CAGR of 16.2% for Cigna, versus a CAGR of 7.7% for UnitedHealth, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid when forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery at the pre-Covid revenue growth rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies with positive revenue growth during Covid, we consider the average annual growth before Covid with some growth weight during Covid and the last twelve months.

2. UnitedHealth is more profitable and offers less risk

  • UnitedHealth’s trailing 12-month operating margin of 8.7% is higher than Cigna’s 4.5%.
  • This compares to the figures of 8.8% and 5.5% seen in 2019, before the pandemic, respectively.
  • If we look at recent margin growth, both companies have seen declines, but UnitedHealth is slightly better, with margin change last twelve months versus three years at -0.2%, versus -1.4 % for Cigna.
  • UnitedHealth’s free cash flow margin of 7.5% is also better than Cigna’s 5.4%.
  • Our UnitedHealth operating profit and Cigna operating profit dashboards have more detail.
  • When it comes to financial risk, UnitedHealth fares better than Cigna. Its 10.5% debt as a percentage of equity is well below Cigna’s 36.9%, while its 12.1% cash as a percentage of assets is well above Cigna’s 3.4%. Better debt and a bigger cash cushion for UnitedHealth means comparatively lower financial risk.

3. Filet of Everything

  • We find that UnitedHealth is more profitable than Cigna and offers comparatively lower financial risk. On the other hand, Cigna has seen better revenue growth over the past few years, and it is available at a lower valuation than UnitedHealth.
  • Now, looking at the outlook, using P/S as a base, due to the large swings in both P/E and P/EBIT, we believe Cigna is currently the better choice of the two.
  • The table below summarizes our revenue and return forecasts for UnitedHealth and Cigna over the next three years and indicates an expected return of 37% for Cigna over this period vs just 9% expected return for UNH, implying that investors would be better off buying CI rather than UNH, based on Trefis Machine Learning analysis – UnitedHealth vs. Cigna – which also provides more detail on how we arrive at these numbers.

Although CI stocks may outperform UNH, it is useful to see how UnitedHealth peers price on the measures that matter. You will find other useful comparisons for companies in all sectors on Peer comparisons.

In addition, the Covid-19 crisis has created many price discontinuities which can offer attractive business opportunities. For example, you’ll be surprised how counter-intuitive stock valuation is to UnitedHealth vs. Netflix


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