Cigna ‘doing right by shareholders’ by reportedly walking away from Humana deal, analysts say

Jefferies analysts upgraded Cigna shares to buy, from hold, saying that the company’s decision to walk away from a Humana deal is a “short-term win” for investors.

Even better, the analysts wrote, was Cigna’s announcement on Sunday said it would buy back an additional $10 billion worth of stock, bringing its total share repurchase authorization to $11.3 billion. The company said it would still consider smaller acquisitions as well as divestitutres.

Cigna halting its pursuit of Humana is “doing right by shareholders,” the Jefferies analysts wrote. Cigna shares had dropped nearly 10% since the potential Humana acquisition was first reported late last month, as investors foresaw a complex deal that would likely be subject to antitrust scrutiny. Taking advantage of that negative reaction by directing almost all free cash flow toward stock buybacks is music to Cigna shareholders’ “value-sensitive ears,” the analysts wrote.

Humana declined to comment, and Cigna did not immediately respond to a request for comment.

Truist Securities analysts on Monday reiterated their buy rating and $365 price target on Cigna shares, noting the company’s statement that at least $5 billion of the planned share buybacks would happen before the end of the first half of 2024, with a portion executed through an accelerated share repurchase in the first quarter of next year.

The developments are a positive for overall sentiment toward the group, Leerink Partners analysts wrote in a note Monday, as they remove some uncertainty and show a focus on core fundamentals and capital deployment priorities.

Cigna’s lack of a huge presence in Medicaid and Medicare Advantage is also a plus, the Jefferies analysts wrote, as Medicaid margins could fall back to pre-pandemic levels over the next two to three years and industry Medicare Advantage growth may be lackluster next year. A Humana deal would have made the insurer a much bigger Medicare Advantage player, as Humana has about 18% of total 2023 Medicare Advantage enrollment, according to health-policy research nonprofit KFF.

The Jefferies analysts raised their price target on Cigna stock to $341, from $335 previously.

Humana shares fell about 2% Monday. Oppenheimer analysts said in a note Sunday that they “would continue to be buyers” of both Cigna and Humana shares as the deal uncertainty is swept away.

Cigna shares are down 9% in the year to date, while Humana stock is down 8% and the S&P 500
SPX
has gained nearly 20%.