Other health insurers include Aetna Inc. (NYSE:AET), WellPoint, Inc. (NYSE:WLP), UnitedHealth Group Inc. (NYSE:UNH), and Humana Inc (NYSE:HUM). We’ve mentioned that health insurers generally trade at low earnings multiples, and it turns out that the forward P/Es for these four peers are all in the 8-9 range. This is the case even though Cigna has been a much stronger market performer over the last year, rising over 30% while three of the peers we’ve covered here have actually experienced a decline in price. Net income was down at Aetna, UnitedHealth, and Humana in their most recent quarter compared to the same period in the previous year; while WellPoint did manage earnings growth, sales were only up 1% and so we are skeptical that the company will be able to sustain its growth rate on the bottom line.
The industry does have some risk, but we think that the earnings multiples are low enough that investors should at least consider looking at health insurers; with most betas being significantly below 1 these companies often fulfill a defensive role as well. Most of Cigna’s peers have not done particularly well in terms of their recent financial performance, though of course Cigna’s own numbers are skewed by its acquisition. If the company does look like it will be able to generate even modest earnings growth going forward, it might be the best pick in its industry.
Disclosure: I own no shares of any stocks mentioned in this article.