News of a potential mega-merger between Cigna (CI) and Humana (HUM) made headlines in today’s trading session.
As the two largest health insurers in the U.S., the merger would create a dominant alliance and investors may be wondering if now is a good time to buy stock in these health giants.
Performance Overview
As they stand alone, Cigna and Humana both have a dominant share of the medical insurance plan market offering HMOs, PPOs, and Private Fee-For-Service (PFFS) plans. Talks of a potential merger via a stock and cash deal saw Cigna’s stock fall -8% on Wednesday while Humana shares fell -5%.
However, the deal could create a revenue pipeline that would be rivaled by few mergers or acquisitions in any industry and Cigna’s stock is up +26% over the last three years while Humana shares have risen +20% with both near the S&P 500’s performance and topping the Nasdaq’s +17%.
More impressive is that over the last decade, Humana’s stock has soared +364% to top the broader indexes while Cigna’s +204% has topped the benchmark’s +160% and is on the heels of the Nasdaq’s +251%.
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Growth & Outlook
The top and bottom line expansion of Humana and Cigna has been remarkable and is why a potential merger could be very enticing for investors. Notably, both stocks have an “A” Zacks Style Scores grade for Growth.
To that point, Cigna’s annual earnings are now expected to rise 6% in fiscal 2023 and jump another 14% in FY24 to $28.23 per share. On the top line, sales are projected to be up 7% this year and climb another 18% in FY24 to $227.64 billion.
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Pivoting to Humana, annual earnings are forecasted to jump 12% in FY23 and climb another 11% in FY24 at $31.42 per share. Total sales are expected to rise 10% in FY23 and expand another 9% next year to $111.94 billion.
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Bottom Line
Given their attractive outlooks, a potential Cigna and Humana merger would be very compelling for longer-term investors. For now, both stocks land a Zacks Rank #3 (Hold) as better buying opportunities could be ahead but their growth and expansion is hard to overlook even without a potential merger.
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