Is Cigna Stock Poised for Growth After Strong Early 2024 Performance?

If you are eyeing Cigna Group stock and wondering if now is the moment to act, you are not alone. There is plenty to talk about with this healthcare giant, especially after a year that saw its share price move through both dips and steady growth. Over the past year, returns have been mixed, with a one-year total return of -12.5%. Over five years, however, the return was a much more robust 81.7%. This tells a story not just of short-term swings but of long-term potential for investors willing to look beyond recent volatility.

In 2024 so far, the stock is up 10.9% year-to-date. This performance suggests that optimism is returning, perhaps driven by market recognition of the company’s consistent revenue and profit growth. With revenue up 4.7% annually and net income up 10.8%, Cigna is demonstrating it can deliver growth in both scale and profitability. The company recently closed over $304 per share, still sitting at an attractive 20.9% discount to analyst price targets.

The big question, of course, is whether these numbers truly signal that the stock is undervalued or if investors are overlooking some risk. By standard valuation methods, Cigna scores a perfect 6 out of 6 for being undervalued across key metrics. However, it is important to consider how meaningful that score is and what it tells us compared with traditional approaches to assessing value. Let’s explore these traditional valuation checks and, afterward, discuss an even more insightful way to understand Cigna’s worth.

Cigna Group delivered -12.5% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Cigna Group Cash Flows

The Discounted Cash Flow (DCF) model works by projecting a company’s future cash flows and then discounting them back to the present to estimate the business’s intrinsic value. For Cigna Group, this approach takes into account both current and anticipated financial performance. It provides investors with a method to gauge whether the stock price accurately reflects the company’s underlying worth.

Cigna’s most recent Free Cash Flow stands at $3.6 billion. Analysts project strong growth over the next decade, with Free Cash Flow expected to rise to approximately $14.9 billion in 2035. Using a two-stage Free Cash Flow to Equity valuation model, the intrinsic value per share is calculated at $1,155.40.

When compared with the recent market price of just over $304 per share, this calculation suggests the stock is 73.7% undervalued. The notable difference between intrinsic value and market price may indicate potential upside, according to the discounted cash flow analysis of Cigna.

Result: UNDERVALUED

Our DCF analysis suggests Cigna Group is undervalued by 73.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks based on DCF analysis.

Approach 2: Cigna Group Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular way to value profitable companies. It relates a company's share price to its earnings per share, making it an effective metric for established businesses like Cigna Group that generate steady profits. Investors often use the PE ratio to assess whether a stock is affordably priced relative to its bottom-line performance.

Growth expectations and risk levels play a significant role in determining what a “normal” or “fair” PE ratio should be. Companies with greater earnings growth potential or lower perceived risk often command a higher PE, while those with more uncertainty may trade at lower multiples. Industry benchmarks provide essential context for these comparisons.

Cigna Group currently trades at a PE ratio of 16.2x. This level is noticeably below the healthcare industry average of 21.3x and is also lower than the peer group average of 20.9x. According to the Fair Ratio, which considers earnings growth, industry environment, profitability, size, and risk, a more appropriate PE for Cigna would be 30.1x. This suggests Cigna is trading at a significant discount even after taking its growth and risk profile into account.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Cigna Group Narrative

While valuation models like PE and DCF crunch the numbers, Narratives offer a more dynamic and personal approach to investing by allowing you to tell your own story about a company’s future. This process involves backing up your perspective with assumptions about factors like revenue growth, earnings, and margins.

A Narrative connects what you believe is happening at Cigna Group, such as growing demand in specialty pharmacy or digital innovation, directly to a forecast and then to a fair value. This makes it much easier to see the link between the business “story” and where the stock might go next.

Within Simply Wall St, Narratives are accessible and easy to build, helping millions of investors quickly translate their views into action. Investors can decide if the stock is a buy, hold, or sell by comparing their chosen Fair Value to the current share price.

The real advantage is that Narratives are kept up to date as news or earnings are released, so your investment thesis stays relevant as the facts change.

For example, one investor might create a bullish Narrative that assumes high future earnings and sets their fair value for Cigna at $428.00. Another investor with a more cautious outlook may put fair value at just $300.00.

Do you think there's more to the story for Cigna Group? Create your own Narrative to let the Community know!

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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