Does Cigna Offer Value After Pharmacy Benefit Business Shakeup and Share Price Drop?

• Wondering if Cigna Group is trading at a bargain or priced for perfection? If questions about the stock’s value have been on your mind, you’re in good company.
• The share price has been somewhat volatile lately, edging up 0.1% over the past week but down 6.9% in the last month, with a modest 1.4% year-to-date gain and a 39.0% return over five years.
• In the news, Cigna has been attracting attention after announcing significant changes to its pharmacy benefit management business and strategic partnerships. These developments have generated renewed investor interest and shifted sentiment about the company’s long-term direction.
• The numbers matter too. Cigna Group currently scores a 5 out of 6 on our undervaluation checks, which suggests it may be undervalued in most key areas. Next, we'll break down the different ways to evaluate that score, and provide a smarter approach to valuation at the end of this article.

Cigna Group delivered -16.0% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Cigna Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and then discounting them back to their present value. This approach allows investors to assess what a business is truly worth today, based on the cash it is expected to generate in the years ahead.

Cigna Group's latest reported Free Cash Flow stands at $7.03 Billion. Analyst forecasts project strong growth, with Free Cash Flow expected to reach $11.24 Billion by 2029. While analysts provide estimates for the next few years, Simply Wall St extends these projections to ensure a complete valuation picture for the company. All figures and calculations here are reported in US dollars.

The DCF model indicates an intrinsic fair value of $1,025.26 per share. Compared to the stock's current trading price, this means Cigna Group is trading at a 72.9% discount to its estimated intrinsic value, which suggests the shares are significantly undervalued based on projected cash flows.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Cigna Group is undervalued by 72.9%. Track this in your watchlist or portfolio, or discover 923 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cigna Group.

Approach 2: Cigna Group Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies because it helps investors gauge how much they are paying for each dollar of a company's earnings. When a business like Cigna Group is consistently profitable, the PE ratio provides a clear indication of whether its stock is affordable compared to its current and expected earnings power.

It is important to note that higher growth expectations typically justify higher PE ratios, while greater risks or slower growth tend to push the fair ratio lower. Therefore, what is considered a reasonable PE ratio depends on how much growth investors expect from the company and its overall risk profile.

Cigna Group currently trades at a PE of 12.1x, which is well below the healthcare industry average of 22.8x and its peer group average of 31.8x. This may initially suggest that the stock is undervalued relative to the broader sector and similar companies. However, using Simply Wall St’s proprietary “Fair Ratio”, which for Cigna Group is 28.6x, provides a more tailored benchmark. The Fair Ratio is designed to account for the company’s specific growth outlook, profit margins, market cap, and industry dynamics, making it a more meaningful indicator than simply comparing with peers or sector averages.

Comparing the current PE to this Fair Ratio, it is clear that Cigna Group’s shares are trading at a substantial discount by this measure. This indicates that, based on its earnings potential and fundamentals, the stock could be considered significantly undervalued at present levels.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Cigna Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. Narratives are a simple, yet powerful way to connect a company’s story, such as its business model, risks, and market drivers, to a financial forecast and then to a fair value estimate. Instead of relying solely on broad ratios or analyst consensus, Narratives let you bring your own perspective and assumptions to the table by outlining how you expect Cigna Group’s revenue, earnings, and margins to change.

On Simply Wall St’s Community page, Narratives are easy to use and trusted by millions of investors. They show you how your view of Cigna Group’s future growth and risks translates, mathematically, into a fair value and whether the current share price is above or below that value. This lets you make clear decisions about timing, backed by your reasoning rather than generic benchmarks.

Narratives also stay up to date automatically as new developments, like earnings releases or news, emerge so your investment story always reflects the latest information.

For example, some investors currently forecast Cigna Group’s fair value as high as $428.00 per share if they expect aggressive revenue growth and margin expansion, while others are much more cautious, seeing fair value at only $300.00. Your Narrative helps you decide where you stand and what action to take.

Do you think there's more to the story for Cigna Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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