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. Cigna: Which 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.
Source: Forbes