Cigna Group

After several years of elevated utilization that has not been fully offset by rate increases yet, covered MCO shares have risen about 35% on average since our last managed care industry report in September 2025, in anticipation of rising profits in at-risk medical insurance plans.

Why it matters: While trading much closer to fair value than they were about a year ago, the managed care organizations we cover still look moderately undervalued to fairly valued to us, with plenty of upside in their earnings growth prospects for the foreseeable future relative to norms. On average through 2030, we expect covered MCOs to grow earnings per share in the midteens compounded annually versus the typical industry goal of low-double-digit growth. This accelerated earnings growth looks likely due to potential margin improvement in at-risk plans—including Medicare Advantage (seniors), the individual exchanges, and Medicaid (low-income)—as the MCOs raise rates, adjust plan designs, and exit unprofitable geographies.

The bottom line: We continue to see reasonably valued to moderately undervalued shares in the managed care industry, even when considering their High to Very High Uncertainty Ratings, which remain about a notch above historical ratings due primarily to elevated regulatory uncertainty. New policy changes are threatening the individual exchange (2026) and Medicaid (2027) businesses. The market appears to be discounting companies with significant exposure to these businesses—like Centene, Elevance, and Molina—relative to their intrinsic value, which is creating an opportunity for long-term investors, in our view. Regulatory actions related to Medicare Advantage and vertical integration in the industry also remain possible. Cigna, CVS, Humana, and UnitedHealth appear most exposed and could eventually face potential fines and even forced separations in some scenarios.

BLANK PAGEFor more details on how each MCO stacks up against its peers, along with the industry's growth prospects, moat ratings, moat sources, and regulatory concerns, please see our September 2026 Industry Landscape on managed care organizations.

We are boosting our fair value estimate on Cigna to $354 per share from $338 per share to reflect cash flow generated since our last valuation change (3%), combined with a mild tweak to our cost of capital assumptions under a new framework (2%),

This valuation reflects constrained profit prospects through at least 2027, driven by anticipated margin pressure from renewals and extensions for large PBM clients at lower rates, as well as new investments to launch its rebate-free PBM model in 2027-28. Management has suggested that new model-related investments may constrain margins through 2027, a view reflected in our model.

Going forward, we assume revenue grows 4% compounded annually through 2030. We expect Cigna's Evernorth (pharmacy benefit management and specialty pharmacy services) to grow at a similar pace in the mid-single digits as its medical insurance operations. Also we project lower earnings growth in 2026-27 than the firm's long-term target of 10-14% annualized growth. Because of those PBM-related headwinds, we project that Cigna's adjusted EPS from 2025 to 2030 will grow at only 9% compounded annually. That growth projection beyond revenue growth relies heavily on share repurchases.

Cigna earns a narrow moat rating. As a top-tier pharmacy benefit manager and top-tier health insurer in the US, Cigna possesses enough competitive advantages—switching costs and network effects—to generate economic profits for at least the next 10 years, in our opinion. After the 2018 merger with Express Scripts and recent divestitures, Cigna’s returns on invested capital took a temporary dip, but its returns already are and look likely to remain moderately above capital costs through our explicit 10-year forecast period.

PBM Leadership Supported by Switching Costs and Network Effect

We view Cigna's pharmaceutical benefit management business (bolstered through the 2018 Express Scripts merger and now called Evernorth) as competitively advantaged. With the top three PBMs processing about 80% of US pharmaceutical claims, we think their cost advantages over other, smaller PBMs led to their dominance of this market. However, they do not appear to have significant cost advantages over one another any longer. From a current moat source perspective, we see some evidence of switching costs and network effects at the top-tier PBMs that could prevent a big change in the competitive landscape, despite some new PBMs taking aim at this market. For example, PBM contracts provide some switching costs for clients with contracts typically lasting about three years on average and retention rates typically in the high 90s, meaning client relationships can extend well beyond contractual terms due in part to inertia factors.

Also, in recent years, we have seen evidence of network effects in the broad PBM industry and specifically at Cigna. Although the future may not look like the past, the other PBMs in the industry continue to lose market share to the big three PBMs, and Cigna gained share through recent contract wins, like the big Centene deal in 2024.

Overall, we think PBM clients are most attracted to the discounts they can get on drugs through a particular PBM due to its negotiating power with other stakeholders in this market, primarily drug manufacturers and pharmacies. As more users are attracted to a PBM, drug manufacturers and pharmacies have incentives to offer even larger discounts to benefit from those volume-based discounts, which can help scale-advantaged PBMs like Cigna attract even more users and create a virtuous cycle or a network effect.

The specialty drug market represents a large and relatively high-margin opportunity for Cigna, too, and already accounts for about half of Cigna's PBM segment profits. In this end market, companies like Cigna provide traditional PBM services like incentivizing appropriate drug use while also directly providing healthcare services, such as infusions to patients. With significant growth expected in branded large molecule and biosimilar drugs, specialty PBMs like Cigna should benefit from a high-single-digit compound annual growth rate expected in the specialty drug market during the next five years. These higher-margin opportunities related to the service component of this business, compared with the small molecule market, could help ROICs rise at Cigna for the foreseeable future.

Medical Insurance: Top-Tier Employer Position Enabled by Cost Advantages and Network Effects

While the PBM's dominance of results makes the medical insurer's moat sources moot on a companywide basis, we continue to see two moat sources in Cigna's medical insurance operations: cost advantage and network effect. An insurer’s cost advantage relates primarily to local scale. Cigna claims a top-tier position in the employer-sponsored market, and the company appears to benefit from some scale advantages in specific locations. Local scale advantages allow for greater negotiating leverage versus service providers than smaller insurers in local markets, which adds to Cigna's cost advantage that it can pass on to clients through lower prices or extra benefits.

Also, when local scale advantages are significant enough, we think Cigna benefits from a network effect. Similar to its top-tier peers, Cigna appears to enjoy growing market share, and in communities where Cigna already has substantial market share, it can offer lower priced products or more benefits per member to existing and potential clients than its peers. That can attract more employers to Cigna's insurance plans in those communities, and as such, local service providers like hospitals and physician groups will have more incentive to join and then offer lower prices to Cigna’s insurance networks to gain access to its growing membership rolls. This dynamic creates a virtuous cycle where Cigna attracts even more clients and more providers to its insurance network, entrenching Cigna in its leading local market positions where applicable.

Regulatory Concerns: Some PBM Risks Are Gone, But Some Remain

Our narrow moat rating is informed by an analysis of potential changes to the US healthcare system, the key long-term environmental, social, and governance risk Cigna faces. Over the next 10 years, we view scenarios in which Cigna provides medical and pharmaceutical benefits through employers or other channels as much more likely than not. However, regulators appear to have set their sights on the PBM industry as one that needs reform. Recent transparency-related changes, such as removing spread and rebate pricing mechanisms, are coming and largely already reflected in business model changes at the top PBMs. But we remain on the lookout for other potential policy changes, such as the separation of medical dispensers and insurers. Also, questions surround the activities and value generated by the group purchasing organization arms of the major PBMs, which could be subject to further regulatory action.

Combining with Express Scripts gave Cigna more tools to help clients control their healthcare costs, and we see significant cross-selling opportunities across their respective books of business.

Cigna continues to increase its focus on the relatively high-margin commercial segment, keeping it out of some of the problems associated with mismatched rates and utilization in government-sponsored programs.

Cigna's organic earnings growth prospects look solid in the long run when including share repurchase activities.

Healthcare reform may remain a recurring political topic until universal, affordable coverage is achieved in the US, and Cigna's stock may experience volatility if scenarios that threaten its prospects gain traction.

Cigna faces some client concentration risk particularly in its Evernorth PBM business where the Department of Defense is its largest client and Centene recently came on board.

Democrats and Republicans agree that the PBM industry needs to be reformed, which may keep Cigna's top profit generator in the regulatory crosshairs.