Cigna Corporation (CI) provides medical and dental insurance and related products and services. The company distributes its products and services through insurance brokers and consultants, directly to employers, and through private and public exchanges.
Clover Health Investments, Corp. (CLOV) is a healthcare technology and insurance service company. Through its software platform Clover Assistant, the company provides Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) health plans to Medicare-eligible consumers. Its plans include hospital coverage, doctor visits, and drug coverage.
The COVID-19 pandemic-driven heightened awareness around health and health care drove private health insurance companies to upgrade their policies and improve their services and plans to better serve their customers. Many companies have introduced various premium options and favorable reimbursement rates and added coverage of various diseases to their plans. Health insurers have also been writing favorable contracts with health care providers to capitalize on the growing demand.
Moreover, the Biden administration has pledged to use its executive authority to strengthen and expand access to marketplace coverage and Medicaid through the Affordable Care Act. Based on these factors, we think CI and CLOV should benefit substantially in the coming months. The global health insurance market is expected to grow at a 5.5% CAGR over the next seven years to reach $3.04 trillion by 2028.
In terms of their past three month’s performance, CLOV is a clear winner with 73.4% gains versus CI’s 1.2% returns. CLOV’s rally can be attributed primarily to its being pulled into the ‘meme stock’ trend lately. But, which of these stocks is a better pick now? Let’s find out.
On June 3, 2021, Hologic, Inc. (HOLX), a global leader in women’s health, announced that CI had updated its medical policy to cover the Acessa Laparoscopic Radiofrequency Ablation (Lap-RFA) procedure as a medically necessary procedure. According to HOLX, approximately 75% of women in the U.S. are affected by fibroids, and limited insurance coverage has caused them to settle for interventions that may not align with their treatment goals. Both companies expect this new development to provide various treatment options to women and expand HOLX’s access in the women’s healthcare market.
On May 20, CI and OSCR announced plans to make their ‘Cigna Administered by Oscar’, a small group health insurance plan, available to small businesses across 15 Arizona counties, beginning July 1. Covered employees will have access to no-cost, 24/7 virtual doctor visits, low-cost prescription coverage, behavioral health support and CI’s networks of quality physicians, specialists and hospitals. Both companies hope this plan will generate sales in the coming months.
Upward Health, a leading in-home medical and behavioral primary care provider, announced a new Preferred Provider relationship with CLOV on June 10, 2021, to serve patients with complex medical, behavioral, and social challenges through CLOV’s Clover Home Care program in the States of New York, Pennsylvania, Georgia, and Texas. As a participant of the U.S. Centers for Medicare and Medicaid Services’ (CMS) new Direct Contracting model, CLOV, together with Upward Health, will focus on reducing costs through improved health outcomes.
On May 24, Scott+Scott Attorneys at Law LLP, an international securities and consumer rights litigation firm, announced that it is investigating whether certain directors and officers of CLOV had breached their fiduciary duties to Social Capital Hedosophia Holdings Corp. III (IPOC) and its shareholders. After CLOV closed a merger transaction with IPOC on January 7, 2021, Hindenberg Research later published a report revealing how CLOV was allegedly hiding governmental investigations from the public. These controversies will likely lead to low sales by CLOV in the coming months.
Recent Financial Results
CI’s adjusted revenues for the first quarter, ended March 31, 2021, increased 6.8% year-over-year to $40.99 billion. The company’s adjusted income from operations was $1.66 billion, which represents a 5.3% year-over-year decline. While its total comprehensive income increased 33.1% year-over-year to $797 million, its EPS increased 4.8% year-over-year to $3.30. As of March 31, 2021, the company had $6.54 billion in cash, cash equivalents and restricted cash and cash equivalents.
For the first quarter, ended March 31, CLOV’s total revenue increased 21% year-over-year to $200.33 million. However, the company’s loss from operations came in at $119.09 million, which represents a 347.2% rise from the prior-year period. Its comprehensive loss increased 85% year-over-year to $48.91 million. Its loss per share is reported at $0.13 for the quarter, down 59.4% from the year-ago period. The company had cash and cash equivalents of $404.51 million as of March 31, 2021.
Past and Expected Financial Performance
CI’s revenue and EPS grew 5.8% and 78.6% respectively, over the past year. The company’s EBITDA has declined at a rate of 7.2% over the past year.
Analysts expect CI’s revenue to increase 4.1% year-over-year in 2021 and 5.7%, respectively, next year. Its EPS is expected to increase 10.6% year-over-year for the current year and 13.7% next year. The stock’s EPS is expected to grow at a 12.6% rate per annum over the next five years.
In comparison, CLOV’s revenue and EBITDA grew 42.2% and 13%, respectively, over the past year. The company’s EPS has declined at a 73.3% rate over the past year.
Analysts expect CLOV’s revenue to increase 21.8% in 2021 and 29.9% next year. However, its EPS is expected to remain negative in the current year and next year. Analysts expect the stock’s EPS to grow at a 32% rate per annum over the next five years.
CI’s trailing-12-month revenue is 226.4 times CLOV’s. CI is also more profitable with a 14.9% gross profit margin versus CLOV’s 8.6%.
Also, CI’s EBITDA margin, ROE and ROTC values of 6.5%, 18.2% and 6.7%, respectively, compare with CLOV’s negative values.
In terms of non-GAAP forward P/E, CI is currently trading at 11.85x, compared to CLOV’s negative 11.20x. CLOV’s 7.07x forward EV/Sales is 971.2% higher than CI’s 0.66x.
Also, in terms of trailing-12-month Price-to-Book, CLOV’s 10.48x is 505.8% higher than CI’s 1.73x.
Thus, CI is more affordable here.
While CLOV has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, CI has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Sentiment, CI has been graded a C because analysts expect the company’s earnings and revenues to decline 14.4% year-over-year in the current quarter. In comparison, CLOV’s F Sentiment Grade reflects its extremely weak earnings estimates. Analysts expect CLOV’s EPS to remain negative in the coming quarters.
CI has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. The company’s 1.73x trailing-12-month Price/Book value is 57.8% lower than the 4.09x industry average. However, CLOV’s D grade for Value reflects its overvaluation. The company has a 10.48x trailing-12-month Price/Book value, which is 156.1% higher than the 4.09x industry average.
Of 11 stocks in the B-rated Medical – Health Insurance industry, CLOV is ranked #11, while CI is ranked #3.
Beyond what we’ve stated above, our POWR Ratings system has also rated CI and CLOV for Growth, Momentum, Stability and Quality. Get all CLOV ratings here. Also, click here to see the additional POWR Ratings for CI.
Both CI and CLOV could witness revenue growth because consumers have been signing up at a heightened rate for long-term comprehensive coverage plans. However, taking into consideration alleged securities violations and a fiduciary duty breach lawsuit against CLOV and its weak analyst sentiment and low profitability ratios, CI appears to be a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical – Health Insurance industry.
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CI shares were trading at $239.76 per share on Monday afternoon, down $2.09 (-0.86%). Year-to-date, CI has gained 16.12%, versus a 13.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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