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Morningstar’s Analysis

Valuation
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Potential Healthcare Policy Changes Create Opportunities for MCOs, Caregivers

Julie Utterback, CFA Senior Equity Analyst

Analyst Note

| Julie Utterback, CFA |

Potential healthcare policy changes look set to expand U.S. insurance rolls through existing programs like the individual exchanges and Medicaid. That expansion provides opportunities for managed-care organizations and caregivers, which should largely offset (even override, in some cases) the potential U.S. corporate tax rate increase needed to pay for various U.S. government initiatives. We have confirmed our moat ratings and adjusted our fair value estimates for these effects, with relatively mild changes for the MCOs and much larger increases for some caregivers related to the latter's more significant margin expansion prospects and leverage that magnified that effect on residual equity values. This view follows our previous research on potential policy changes that highlighted the public option as the key downside risk for these sectors. With the public option not being considered in potential policy changes, we think the policy landscape is rife with opportunity rather than risk for MCOs and caregivers.

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Company Profile

Business Description

Cigna primarily provides pharmacy benefit management and health insurance services. Its PBM services were greatly expanded by its 2018 merger with Express Scripts and are mostly sold to health insurance plans and employers. Its largest PBM contract is the Department of Defense. In health insurance and other benefits, Cigna mostly serves employers through self-funding arrangements, but it also operates in government programs, such as Medicare Advantage. The company operates mostly in the U.S. with 15 million medical members covered as of the end of 2020, but its services extend internationally, covering another 2 million people.

Contact
900 Cottage Grove Road
Bloomfield, CT, 06002
T +1 860 226-6000
Sector Healthcare
Industry Healthcare Plans
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Aggressive Growth
Employees 73,700

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