This Health Insurance Company Is A Better Pick Over UnitedHealth Stock

UNH: UnitedHealth Group logo
UnitedHealth Group

We think that Cigna stock (NYSE: CI) currently is a better pick compared to UnitedHealth stock (NYSE: UNH) in the healthcare sector, given its comparatively lower valuation and better prospects. UNH stock trades at about 1.6x trailing revenues, compared to just 0.4x for CI stock. Although both the companies saw a rise in revenue over the last year or so, with an increase in Medicaid and Medicare enrollments, UnitedHealth has performed better, with a better than expected top-line as well as bottom-line expansion.

Looking at stock returns, UNH stock, with 17% returns over the last six months, has outperformed CI stock, up around 11%. Both the stocks have outperformed the broader indices, with the S&P 500 falling 7% over the same period. However, there is more to the comparison, and we believe that CI stands out with higher expected returns than UNH, as discussed in the sections below.  We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis UnitedHealth Group vs. CignaWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Cigna’s Revenue Growth Over The Recent Years Has Been Stronger

  • Both companies managed to see sales growth over the recent quarters, but UnitedHealth has witnessed comparatively faster revenue growth of 12% over the last twelve months, compared to 8% for Cigna.
  • Looking at a longer time frame, UnitedHealth’s sales have grown at a CAGR of 8.4% from $226 billion in 2018 to $287 billion over the last twelve months, while Cigna’s revenues have risen at a CAGR of 76.2% from $48.7 billion to $174.1 billion over the same period.
  • The sharp rise in Cigna’s revenue can be attributed to its Express Scripts acquisition in Dec 2018.
  • For UnitedHealth, the revenue growth was partly driven by increased demand for its OptumHealth business, which provides health care through local medical groups.
  • Our UnitedHealth Revenue and Cigna Revenue dashboards provide more details on the company’s segments.
  • Looking forward, both the companies’ revenues are expected to grow at a similar pace. The table below summarizes our revenue expectation for UNH and CI over the next three years and points to a CAGR of 7.6% for UnitedHealth, compared to a CAGR of 7.8% for Cigna.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies 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 in the three years before Covid to simulate 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.
Relevant Articles
  1. Which Healthcare Stock Is A Better Pick – UnitedHealth Group Or CVS Health?
  2. Should You Pick UnitedHealth Stock At $480 After A Q1 Beat?
  3. Will The Q1 Medical Care Ratio Define The Move In UnitedHealth Stock?
  4. Which Is A Better Pick – UnitedHealth Stock Or Humana?
  5. Should You Pick UnitedHealth Stock After A 15% Fall This Year?
  6. Should You Pick UnitedHealth Stock At $510 After A Q4 Beat?

2. UnitedHealth Is More Profitable, And It Offers Lower Risk

  • UnitedHealth’s operating margin of 8.9% over the last twelve-month period is better than 4.6% for Cigna.
  • If we look at the recent margin growth, both the companies have seen a decline, but UnitedHealth is slightly better, with the last twelve months vs. last three-year margin change at -0.1%, compared to -1.3% for Cigna.
  • UnitedHealth’s free cash flow margin of 7.8% is also better than 4.1% for Cigna.
  • Looking at financial risk, UnitedHealth beats Cigna. Its 9.3% debt as a percentage of equity is much lower than 43.5% for Cigna. Its 11.3% cash as a percentage of assets is much higher than 3.9% for Cigna, implying that UnitedHealth has a better debt and cash position, indicating comparatively a lower risk.

3. The Net of It All

  • We see that UnitedHealth is more profitable than Cigna, and it offers comparatively a lower financial risk. On the other hand, Cigna has seen better revenue growth over the recent years, and it is available at a lower valuation than UnitedHealth.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Cigna is currently the better choice of the two. The table below summarizes our revenue and return expectation for UNH and CI over the next three years and points to an expected return of 20% for CI over this period vs. just 8% expected return for UNH, implying that investors are better off buying CI over UNH, based on Trefis Machine Learning analysis – UnitedHealth vs. Cigna – which also provides more details on how we arrive at these numbers.

While CI stock may outperform UNH, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. IDEXX Laboratories.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
UNH Return 2% -3% 204%
CI Return 0% 4% 78%
S&P 500 Return -4% -12% 88%
Trefis MS Portfolio Return -5% -15% 236%

[1] Month-to-date and year-to-date as of 3/8/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates