Deal or No Deal, Cigna Is a Buy at Current Levels
Whether or not the Anthem's (ANTM) - Get Report tie-up with Cigna (CI) - Get Report makes it to the finish line, Cigna's stock is attractive at present levels.
On Thursday, Cigna shares closed at $127, down 1%. The stock hit a 52-week low of $121.87 on June 27 but has since rebounded. The stock is down 13% year-to-date.
Despite the rebound, according to Oppenheimer, Cigna, in particular, looks like a buy at current levels.
"Overall, CI continues to trade as if a deal is unlikely, and looks fairly attractive even based on standalone values," wrote Oppenheimer's Michael Wiederhorn, David Lager and Matt Nirenberg in an note Thursday. "Furthermore, there is the possibility-as remote as it may appear-that the acquisition still goes through, leaving the possibility for significant upside."
The analysts reinstated their outperform rating on the stock and a price target of $149.
The price target would represent a multiple of 16 times. Cigna has a price-to-earnings ratio of 14.55 times, while Anthem has 13.04, UnitedHealth (UNH) - Get Report has 23.04, Humana (HUM) - Get Report has 24.6 and Aetna (AET) has 16.15, according to Bloomberg data.
Anthem in July of last year unveiled its deal to buy Cigna in a cash-and-stock transaction valued at $54.2 billion.
In their Thursday note, Oppenheimer analysts noted that standalone Cigna has plenty of things going for it. Among them is $2 billion in non-regulated cash that can go toward acquisitions or stock buybacks. They also pointed to the break-up fee of as much as $1.85 billion that Cigna would get from Anthem if the transaction collapses.
TheStreet last month reported that if the deal does not go through, Cigna could be a buyer, with a Leerink Partners analyst saying that Cigna could look to purchase smaller managed-health care company, such as Molina Healthcare (MOH) - Get Report or Wellcare Health Plans (WCG) - Get Report .
Oppenheimer analysts also wrote on Thursday that Cigna's business "does not appear to be deteriorating."
"While a common concern during a long acquisition process is the impact on the business, that has not yet been an issue for Cigna," the analysts wrote, pointing out that the company has exceeded analyst expectations "during all three relevant quarters, and appears to be on solid footing."
In the first quarter of 2016, for instance, Cigna reported adjusted earnings of $2.32 a share, which topped Wall Street's forecasts of $2.15 a share and was higher than $1.96 a share it earned in the year-ago period.
In May of this year, The Wall Street Journal reported that the two companies had bickered over missed deadlines, uncertainty about executives' roles and a lawsuit by Anthem against Express Scripts (ESRX) . And last month, the Journal reported that antitrust regulators have privately voiced concerns about the Anthem-Cigna deal relating to the anti-competitive nature of the transaction.