Cigna Corporation (CI) is a health insurance company that 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 private and public exchanges.
Oscar Health, Inc. (OSCR) is a technology-enabled health insurance company that offers insurance plans to individuals, families, and businesses. The company’s full stack technology platform allows it to offer personalized insights and benefits, and helps its members find quality care at affordable rates.
Health insurance companies have been upgrading their insurance policies with various premium options and to offer attractive reimbursement policies amid the pandemic-led uncertainty regarding healthcare. To capitalize on current market trends, companies have been developing insurance products that provide access to low-cost, 24/7 virtual quality doctor visits. This trend is likely to continue for the foreseeable future also. 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.
While CI’s stock has appreciated 2% over the past month, OSCR’s surged 12.9%. And in terms of their past three month’s performance, CI is a clear winner with 16.5% gains versus OSCR’s 26.2% returns. But, which of these stocks is a better pick now? Let’s find out.
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 good sales in the coming months.
CI added Iora Health, an innovative primary care provider group, to its Medicare Advantage (MA) network on January 6. Amid the heightened need for easier and more accessible primary care for seniors, CI hopes to deliver affordable, high-quality care to its customers, with the help of Iora Health’s expertise.
On May 27, 2021, Labaton Sucharow law firm announced its investigation of potential securities violations and breach of fiduciary duty claims against OSCR. After going public on March 3, 2021, the company suffered an $87.4 million loss in the first quarter of 2021 even after generating high revenues during the period. These lawsuits are expected to cause sales to decline in the coming quarters.
Recent Financial Results
CI’s adjusted revenues for its fiscal year 2021, first quarter, ended March 31, 2021, increased 6.8% year-over-year to $40.99 billion. The company’s adjusted revenues from its U.S. medical segment came in at $10.36 billion, up 5.1% from the prior-year period. Its adjusted income from operations is reported to be $1.66 billion, which represents a 5.3% year-over-year decline. While its net income declined slightly from the year-ago period to $1.16 billion, its EPS increased 4.8% year-over-year to $3.30.
For its fiscal year 2021 first quarter, ended March 31, OSCR’s total revenue increased 319.3% year-over-year to $369.39 million. However, the company’s loss from operations was $62.53 million, which represents a 34.8% decline from the prior-year period. Its net loss decreased 9.8% year-over-year to $87.37 million. Its loss per share is reported at $0.98 for the quarter, down 70.8% from the year-ago period.
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 decrease 5% year-over-year in its fiscal second quarter (ending June 30, 2021), but increase 4.1% in the current year, and 5.7% in the next year. Its EPS is expected to decrease 14.4% year-over-year for the second quarter but increase 10.6% for the current year and 13.7% next year.
In comparison, OSCR’s EBITDA and EPS grew 54.9% and 53.4%, respectively, over the past year. The company’s revenue has declined at a rate of 17.8% over the past year.
Analysts expect OSCR’s revenue to increase 41.6% in fiscal 2021, and 39.4% next year. However, its EPS is expected to remain negative in the current year.
CI’s trailing-12-month revenue is 239.30 times OSCR’s. However, CI is more profitable with a 6.5% EBITDA margin versus OSCR’s negative value.
Also, CI’s net income margin, ROE and ROTC values of 5.2%, 18.2% and 6.7%, respectively, compare favorably with OSCR’s negative values.
In terms of non-GAAP forward P/E, CI’s is currently trading at 12.59x, compared to OSCR’s negative 11.20x. OSCR’s 1.27x forward EV/Sales is 86.8% higher than CI’s 0.68x.
While OSCR has an overall C grade, which translates to Neutral 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 in the current quarter (ending June 2021). In comparison, OSCR’s D Sentiment Grade reflects comparatively weak earnings growth expectations in the current year because the company’s EPS is expected to remain negative this year.
CI has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. This is justified because the company’s 0.70x trailing-12-month EV/Sales value is 90.9% lower than the 7.69x industry average. However, OSCR has a C grade for Value, given its slightly higher valuation compared to its peers. The company has a 4.36x trailing-12-month EV/Sales value, which is 25.8% higher than the 3.47x industry average.
Of 11 stocks in the B-rated Medical – Health Insurance industry, OSCR is ranked #7, while CI is ranked #4.
Beyond what we’ve stated above, our POWR Ratings system has also rated both CI and OSCR for Growth, Momentum, Stability and Quality.
Both CI and OSCR are well-positioned to generate substantial revenues in the upcoming months because people have been signing up for long-term comprehensive coverage plans. However, taking into consideration alleged securities violations and a fiduciary duty breach lawsuit against OSCR and weak analyst sentiment, CI’s strong fundamentals make it 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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OSCR shares were unchanged in after-hours trading Friday. Year-to-date, OSCR has declined -26.15%, versus a 13.40% 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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