The economy has been facing strong inflationary pressure, with the Consumer Price Index rising 7.9% in February, its highest monthly gain since January 1982. Last week, the Fed approved its first interest rate increase in more than three years and plans to increase rates several more times this year. In addition, experts expect Treasury yields to continue rising over the next 12 months.
Higher-than-expected inflation data may compel the Fed to raise interest rates more aggressively than originally forecasted to keep inflation in check. Higher interest rates and Treasury yields bode well for financial companies, including insurers. Higher bond yields increase the risk-free returns of insurance companies because they invest in high-grade fixed-income instruments to meet their promised returns to policyholders. Investors’ interest in insurance stocks is evidenced by the SPDR S&P Insurance ETF’s (KIE) 15.8% gains over the past year.
Given this backdrop, we think it could be wise to bet on quality insurance stocks Cigna Corporation (CI), Humana Inc. (HUM), Molina Healthcare, Inc. (MOH), MS&AD Insurance Group Holdings, Inc. (MSADY), and Everest Re Group, Ltd. (RE), which are currently trading at discounts to their peers.
Cigna Corporation (CI)
CI is a Bloomfield, Conn.-based health services company that offers medical, dental insurance, and related products and services. The company’s segments include Evernorth and Cigna Healthcare. Its Evernorth segment provides a range of coordinated and point solution health services. Its Cigna Healthcare segment offers medical, pharmacy, behavioral health, dental, vision, health advocacy programs, and other services for insured and self-insured customers.
On Feb. 28, 2022, CI announced a $6 billion increase in its share repurchase authorization. The company plans to deploy more than $7 billion in capital to share repurchases in 2022. This is part of the company’s capital deployment strategy to enhance shareholder value and deliver long-term growth. CI’s Chairman and CEO David M. Cordani said, “Cigna continues to execute against our strategic growth plan successfully and is committed to improved shareholder returns as we deliver health care that is affordable, predictable, and simple for our customers and clients around the world.”
CI’s adjusted revenues increased 9.6% year-over-year to $45.67 billion for the fourth quarter, ended Dec. 31, 2021. The company’s adjusted income from operations increased 24% year-over-year to $1.57 billion. Also, its adjusted per-share income from operations came in at $4.77, representing a 35.8% increase of 35.8% year-over-year.
In terms of forward EV/S and P/S, CI’s respective 0.59x and 0.43x are lower than the 4.56x and 5.33x industry averages. Also, its 9.10x forward P/CF is 47.6% lower than the 17.39x industry average.
Analysts expect CI’s EPS for its fiscal year 2023 to increase 11.5% year-over-year to $25.07. Its revenue for the quarter ending March 31, 2022, is expected to increase 5.8% year-over-year to $43.38 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past six months, the stock has gained 18.7% to close the last trading session at $242.10.
CI’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, Stability, and Quality. It is ranked #5 out of 11 stocks in the B-rated Medical – Health Insurance industry. Click here to see the other ratings of CI for Momentum and Sentiment.
Humana Inc. (HUM)
HUM is a health and well-being company based in Louisville. Ky., that operates in the Retail; Group and Specialty; and Healthcare Services segments. The company’s Retail segment consists of Medicare benefits marketed to individuals or via group Medicare accounts. In contrast, its Group and Specialty segment consist of employer group commercial insured medical and specialty health insurance benefits.
On Nov. 22, 2021, HUM announced expanding its existing agreement with Allina Health to focus on value-based care for HUM’s Medicare Advantage members in Minnesota. The multi-year deal is effective from the beginning of 2022, and it should enable HUM to deliver value-based care across the United States consistently.
For its fiscal fourth quarter, ended December 31, 2021, HUM’s adjusted revenue increased 11.8% year-over-year to $21.19 billion. The company’s adjusted pre-tax income came in at $166 million, compared to a $498 million loss in the year-ago period. Also, its adjusted EPS came in at $1.24, compared to a $2.30 adjusted loss per share in the year-ago period.
In terms of forward EV/S and P/S, HUM’s respective 0.70x and 0.60x are lower than the 4.56x and 5.33x industry averages. Furthermore, its 3.22x forward P/B is 2.1% lower than the 3.29x industry average.
For its fiscal year 2022, HUM’s EPS is expected to increase 17.1% year-over-year to $24.16. Its revenue for the quarter ending June 30, 2022, is expected to grow 13% year-over-year to $23.19 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 9.6% in price to close the last trading session at $437.42.
HUM’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Sentiment. Within the B-rated Insurance – Life industry, it is ranked first among 29 stocks. To see the other ratings of HUM for Momentum, Stability, and Quality, click here.
Molina Healthcare, Inc. (MOH)
MOH is a provider of managed healthcare services under the Medicaid and Medicare programs and through the state insurance marketplaces. The Long Beach, Calif., company operates through four segments: Medicaid, Medicare, Marketplace, and others. The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs to which the company offers managed healthcare services.
On Oct. 7, 2021, MOH announced that it had agreed to acquire the Medicaid Managed Long Term Care business of AgeWell New York. The company’s President and CEO, Joe Zubretsky, said, “The addition of AgeWell to Molina’s expanding New York footprint is complementary to our existing MLTSS business and representative of our strategic growth strategy.”
MOH’s total revenue increased 41.5% year-over-year to $7.40 billion for the fourth quarter, ended Dec. 31, 2021. The company’s adjusted net income came in at $170 million, compared to a $30 million adjusted net loss in the year-ago period. Also, its adjusted EPS came in at $2.88, compared to an adjusted loss per share of $0.51.
In terms of forward EV/S and EV/EBIT, MOH’s respective 0.59x and 12.54x are lower than the 4.56x and 17.58x industry averages. Moreover, its 11.42x forward EV/EBITDA is 16.8% lower than the 16.8% industry average.
Analysts expect MOH’s EPS and revenue for the quarter ending June 30, 2022, to increase 31.5% and 18.1%, respectively, year-over-year to $4.47 and $7.54 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 43.5% in price to close the last trading session at $337.50.
MOH’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #3 in the Medical – Health Insurance industry. Click here to see the other ratings of MOH for Momentum and Stability.
MS&AD Insurance Group Holdings, Inc. (MSADY)
Headquartered in Tokyo, Japan, MSADY is an insurance holding company that provides insurance and financial services worldwide. The company offers fire and allied, marine, personal accident, voluntary automobile, compulsory automobile liability, non-insurance products, life insurance, and reinsurance services. It also offers financial services, 401k, personal finance, risk management, and other services.
On Nov. 24, 2022, MSADY’s subsidiary Mitsui Sumitomo Insurance Co., Ltd. announced that it would establish MSR Capital Partners, LLC (MSR) with LGT Capital Partners Ltd. in the United States. MSR will be responsible for asset management, focusing on private equity investments in the U.S. This move should enable MSADY to improve its profitability by strengthening its foreign asset management capabilities.
For nine months ended Dec. 31, 2021, MSADY’s net premiums written increased 2.5% year-over-year to ¥2.74 trillion ($0.02 trillion). The company’s other ordinary income increased 90.9% year-over-year to ¥21.40 billion ($0.17 billion). Also, its net income increased 35.6% year-over-year to ¥207.33 billion ($1.70 billion).
In terms of forward EV/S and EV/EBIT, MSADY’s respective 0.17x and 2.54x are lower than the 2.95x and 11.89x industry averages. Its 0.43x forward P/S is 86.7% lower than the 3.24x industry average.
Over the past nine months, the stock has gained 21.6% in price to close the last trading session at $17.57.
MSADY’s POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Stability. Within the B-rated Insurance – Property & Casualty industry, it is ranked #9 of 54 stocks. To see the other ratings of MSADY for Sentiment and Quality, click here.
Everest Re Group, Ltd. (RE)
Headquartered in Hamilton, Bermuda, RE underwrites reinsurance and insurance in the United States, Bermuda, and international markets. The company operates in the U.S. Reinsurance; International; Bermuda; and Insurance segments. RE offers treaty and facultative reinsurance and admitted and non-admitted insurance. Its products include a range of property and casualty reinsurance and insurance coverages.
RE's total revenues increased 12.9% year-over-year to $3.12 billion for the fourth quarter, ended Dec. 31, 2021. The company’s net income increased 577.2% year-over-year to $430.70 million. Also, its EPS came in at $10.94, representing a 588% increase year-over-year.
In terms of forward EV/S and P/S, RE’s respective 1.02x and 0.89x are lower than the 2.95x and 3.24x industry averages. Its 0.85x forward non-GAAP PEG is 18% lower than the1.03x industry average.
Analysts expect RE’s EPS and revenue for fiscal 2022 to increase 19.5% and 17.4%, respectively, year-over-year to $31.44 and $11.10 billion. Over the past year, the stock has gained 21.4% in price to close the last trading session at $295.
RE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Momentum. It is ranked first out of eight stocks in the Insurance – Reinsurance industry. Click here to see the other ratings of RE for Stability, Sentiment, and Quality.
CI shares were trading at $242.78 per share on Friday morning, up $0.68 (+0.28%). Year-to-date, CI has gained 6.23%, versus a -4.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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