Deutsche Bank is no longer on the sidelines for Cigna (NYSE:CI). The German multinational upgraded the U.S. health insurer to Buy from Hold on Thursday after the latter agreed to offload its Medicare business for $3.7B in cash.
The sale, expected to close in Q1 2025, will also include a four-year services agreement under which CI’s Evernorth unit will continue to serve its Medicare business for Pharmacy Benefits Management even under the new acquirer, Health Care Service Corp. Additionally, the company intends to use the majority of sales proceeds on share buybacks.
Deutsche Bank argued that its investment thesis on Cigna (CI) always centered around the company’s valuation with the hope that investors would finally start to pay a premium for its more lucrative but slow-growing commercial business versus its Medicare unit.
Despite Cigna’s (CI) success in commercial insurance and the sale of its Medicare arm, the firm argued the company could continue to face near-term margin headwinds amid higher growth investments and expenses related to PBM implementation.
However, it raised its price target on CI to $370 from $355 per share to reflect its increased confidence in the company’s ability to hit 2025 EPS estimates without its underperforming Medicare unit amid share buybacks and capital inflows.
