We believe that CVS Health stock (NYSE: CVS) is currently a better pick over its peer Cigna stock (NYSE: CI), given its comparatively lower valuation of 0.4x trailing revenues vs. 0.6x for Cigna. Looking at stock returns, Cigna, with 45% returns so far this year, has fared better than CVS stock, which is down 9%, and both have outperformed the broader S&P500 index, down 19% over this period. There is more to the comparison, and in the sections below, we discuss why we believe CVS stock will offer better returns than CI stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of CVS Health vs. Cigna: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Cigna’s Revenue Growth Was Better Over Recent Years
- Both companies managed to see sales growth over the recent quarters. Still, CVS’ 10.6% revenue growth over the last twelve months fares better than 7.2% for Cigna.
- However, if we look at a longer time frame, CVS Health’s sales have risen at an average annual growth rate of 15.1% to $292 billion in 2021, compared to $195 billion in 2018, while Cigna’s sales rose at an average rate of 76.2% to $174.1 billion in 2021, vs. $48.7 billion in 2018.
- CVS Health’s revenue growth has been aided by its Aetna acquisition in 2018, while Cigna’s revenue growth was aided by the Express Scripts acquisition in Dec 2018.
- CVS’ revenue growth since the beginning of the pandemic was driven by increased demand for Covid-19 testing and vaccine administration.
- The company’s healthcare benefits segment has seen an 18% rise in revenue between 2019 and 2021, led by a rise in total medical membership, which currently stands at 24.4 million, compared to 22.9 million in 2019. This trend is expected to continue over the coming years, given the aging U.S. population.
- While CVS is expected to see a decline in revenue from Covid-19 testing and vaccine administration, its other businesses, including pharmacy services and healthcare benefits, are expected to grow steadily.
- For Cigna, increased drug prices due to higher inflation have aided revenue growth in the recent past. The company is also seeing a rise in its total medical customer base, bolstering its top-line growth.
- Earlier this year, Cigna completed the divestiture of life, accident, and supplemental benefits business in Asia to Chubb for $5.4 billion. It plans to use the proceeds on stock repurchases, which has aided its stock price growth.
- Our CVS Health Revenue Comparison and Cigna Revenue Comparison dashboards provide more details on the company’s segments.
- The table below summarizes our revenue expectation for both companies over the next three years and points to a CAGR of 10.7% for CVS, compared to a CAGR of 16.2% for Cigna.
- Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run 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 registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. Cigna Is More Profitable
- CVS’ operating margin of 2.7% over the last twelve-month period is lower than 4.3% for Cigna.
- This compares with 5.8% and 5.4% figures seen in 2019, before the pandemic, respectively.
- CVS’ 7.0% free cash flow margin is better than 5.6% for Cigna.
- Our CVS Health Operating Income Comparison and Cigna Operating Income Comparison dashboards have more details.
- Looking at financial risk, both are comparable. Although CVS’ 42.2% debt as a percentage of equity is higher than 35.2% for Cigna, its 8.6% cash as a percentage of assets is better than 3.1% for the latter, implying that Cigna has a better debt position, and CVS has more cash cushion.
3. The Net of It All
- We see that the historical revenue growth, profitability, and debt position are better for Cigna. On the other hand, CVS has more cash cushion and is trading at a comparatively lower valuation.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe CVS is currently the better choice of the two. We believe the valuation gap between the two companies will narrow in favor of CVS.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 41% for CVS over this period vs. a 27% expected return for Cigna stock, implying that investors are better off buying CVS over CI, based on Trefis Machine Learning analysis – CVS Health vs. Cigna – which also provides more details on how we arrive at these numbers.
While CVS stock may outperform CI, it is helpful to see how CVS Health’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Lowe’s vs. Amerco.
With inflation rising and the Fed raising interest rates, among other factors, CVS stock has seen a 9% drop this year. Can it drop more? See how low CVS Health stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||-5%||-19%||73%|
|Trefis Multi-Strategy Portfolio||-5%||-21%||216%|
 Month-to-date and year-to-date as of 12/22/2022
 Cumulative total returns since the end of 2016