3. The Cigna Group (NYSE:CI)
Number of Hedge Fund Shareholders: 79
Hedge fund ownership of The Cigna Group (NYSE:CI) is up by 43% over the last five quarters, including hitting an all-time high in the first quarter of 2023. Michael Burry’s Scion Asset Management was one of the most prominent fund managers to take a stake in CI during Q1, buying 25,000 shares. The iconic money manager, who’s famed for his bet against bonds and the housing market during the financial crisis, as portrayed in ‘The Big Short’, now has just under 6% 13F exposure to Cigna.
The Cigna Group (NYSE:CI) is one of the five biggest health insurers in the world, with just over 178 million customer relationships at the end of 2022, up by 2.2% year-over-year. Shareholders’ net income per share rose to $4.24 in Q1, up from $3.73 a year earlier and analysts predict that Cigna will be able to continue growing its adjusted diluted EPS by more than 11% per year over the next five years, only slightly lower than the industry’s expected earnings growth.
The Artisan Value Fund debated some of the reasons The Cigna Group (NYSE:CI) may have sold off during the first quarter in the fund’s Q1 2023 investor letter:
“The Cigna Group (NYSE:CI) delivered strong operating results that came in well ahead of the company’s initial guidance, yet the stock has continued to sell off since the beginning of 2023. It seems there are a few reasons for it: 1) concerns over the government targeting pharmacy benefit managers and trying to directly negotiate drug prices under the president’s new budget, 2) a potential normalization of elective procedures that increases medical costs, 3) a rotation by dedicated health care investors toward medical technology and technology areas and away from the safety of big pharma and HMOs, 4) disenrollment trends as it relates to the commercial book of business heading into a potential downturn, and 5) selling in the space as we approach another presidential election in 2024. Pick your poison, but the selling has taken the stock price back to its levels of mid-2022. Our investment case hasn’t changed. Cigna is one of the few managed care organizations in the US with the scale and size to compete effectively. In 2022, free cash flow was $7.4 billion, up $1.3 billion from 2021. Cigna paid down $3.5 billion of debt, repurchased $7.6 billion in stock and sold its life, accident and supplemental benefits business in Asia to Chubb that helped fund the share repurchases. In short, the business in performing well, and management is smartly allocating capital. Additionally, the stock is selling for less than 11X next year’s earnings, which is inexpensive.”
