Cigna Offers Cleaner Growth Than Other Health Insurers, Says Analyst

Core Insights - BofA Securities highlights rising cost pressures and uncertainty in earnings estimates for managed care organizations, indicating that Medicare presents greater risks compared to Medicaid, and reported EPS may not accurately reflect true earnings potential [1] Group 1: Cigna Group - Cigna Group (NYSE:CI) is noted for providing clean exposure to commercial health insurance, which is the only segment performing consistently well, alongside a scaled pharmaceutical platform [2] - Through its pharmacy benefit manager and specialty pharmacy businesses, Cigna is well-positioned to benefit from increasing drug spending, including obesity therapies and gene therapies, without relying on specific products [3] - Cigna is expected to achieve 10%–15% annual EPS growth post-2026, as the Pharmacy Benefits Manager model resets [3] Group 2: Valuation and Market Position - Cigna's stock trades at approximately a 12% free cash flow yield and has significantly less government exposure than peers, supporting a similar 10%–15% return profile [4] - The valuation at 8.1x 2027 earnings appears compressed relative to de-risked estimates, with potential for a re-rating towards a historical multiple of 10x–12x [5] - BofA is also optimistic about Alignment Healthcare, Inc. (NASDAQ:ALHC), expecting over 20% member growth due to favorable conditions from Stars in 2026 [5] Group 3: UnitedHealth Group - UnitedHealth Group Inc (NYSE:UNH) is viewed as well-positioned for the coming years, contingent on a supportive Medicare Advantage rate environment [6] - The firm is awaiting the 2027 Medicare Advantage rate proposal to evaluate potential coding changes that could impact margins [6] - If regulatory stability is indicated, UNH could significantly expand margins in 2027 as a $6 billion headwind is expected to roll off [7] Group 4: Medicaid and Market Dynamics - Ongoing declines in Medicaid enrollment are reshaping the risk pool, complicating rate setting for states and limiting margin expansion for Medicaid-focused insurers like Centene Inc. (NYSE:CNC) and Molina Healthcare Inc. (NYSE:MOH) [7] - Accurately pricing exchange risk for 2026 remains uncertain due to shifting membership trends, leading to a lack of market reward for execution until at least the second quarter of 2026 [8]