Cigna Group shares (CI) soared 16% on Monday, marking their biggest daily gain since 2009. The reported collapse of the insurance giant’s deal talks with Humana Inc. (HUM) has been seen as a quick win for investors, leading analysts to upgrade Cigna shares to a “buy”.
Breakdown of Negotiations
According to The Wall Street Journal, negotiations between Cigna and Humana fell through due to a failure to reach an agreement on price and other financial terms. In response to this setback, Cigna made the decision to walk away from the deal.
Analysts’ Perspective
Doing Right by Shareholders
By halting its pursuit of Humana, Cigna is demonstrating its commitment to shareholders, according to the Jefferies analysts. In fact, Cigna shares had experienced a nearly 10% drop since the news of the potential Humana acquisition first emerged late last month. This decline was largely attributed to concerns regarding the complexity of the deal and potential antitrust scrutiny. Cigna’s decision to allocate a significant portion of its free cash flow towards stock buybacks is seen as a positive development for value-oriented shareholders.
No Comment
Humana has declined to comment on the collapsed deal, while Cigna has yet to respond to requests for comment.
Truist Securities Analysts Reiterate Buy Rating on Cigna Shares
Truist Securities analysts have reiterated their buy rating on Cigna shares, along with a price target of $365. This reaffirmation comes in light of Cigna’s announcement that it plans to repurchase at least $5 billion worth of shares by the end of the first half of 2024. A portion of this buyback will be executed through an accelerated share repurchase in the first quarter of next year.
According to Leerink Partners analysts, these developments have had a positive impact on overall sentiment towards the group. They have removed some uncertainty and have demonstrated a focus on core fundamentals and capital deployment priorities.
One favorable aspect highlighted by Jefferies analysts is Cigna’s limited presence in Medicaid and Medicare Advantage. They explain that Medicaid margins could decline in the next two to three years, while industry Medicare Advantage growth may be lackluster next year. By not pursuing a deal with Humana, Cigna has avoided becoming a larger Medicare Advantage player. Humana currently holds approximately 18% of total 2023 Medicare Advantage enrollment, according to health-policy research nonprofit KFF.
In light of these factors, Jefferies analysts have raised their price target on Cigna stock to $341, up from the previous target of $335.
Meanwhile, Humana shares experienced a 2% decrease on Monday. However, Oppenheimer analysts expressed their eagerness to continue buying both Cigna and Humana shares, now that the uncertainty surrounding the deal has been resolved.
As of now, Cigna shares have dropped 9% year-to-date, while Humana stock has fallen by 8%. In contrast, the S&P 500 has seen a gain of almost 20%.