Cigna's Healthcare Sector Outlook: A More Attractive Option Amidst Uncertainty

Cigna is looking more attractive than UnitedHealth Group due to increasing medical costs and political pressure on the healthcare sector. The sector has been under selling pressure this year, particularly in the Medicare/Medicaid system. Cigna has been affected by these factors, but its stock has shown some resilience. The company's business model is more diversified than UnitedHealth Group's, which may make it more appealing to investors.

In a year marked by significant selling pressure in the healthcare sector, particularly due to rising medical costs and political pressures on the Medicare/Medicaid system, Cigna (NYSE:CI) has emerged as a more attractive investment compared to UnitedHealth Group (NYSE:UNH). While both companies have been affected by these factors, Cigna's business model, characterized by a more diversified revenue stream, has shown resilience.

Cigna's stock performance has been noteworthy. On July 31, 2025, the stock traded at a volume of $1.50 billion, a 91.09% increase from the previous day, ranking 82nd in market activity [1]. Despite the strong volume, the stock closed down 10.23%, diverging from broader market trends. This decline can be attributed to mixed earnings reports, including a Q2 net income dip, and broader market caution. However, the stock's 5-year total return of 84.22% underscores its long-term growth potential.

Cigna's Q2 2025 adjusted earnings per share of $7.20 exceeded estimates, with revenues rising 11% year-over-year to $67.1 billion. The performance was driven by its Evernorth Health Services segment, which saw a 17% revenue increase. However, a 5.2% decline in medical customers, attributed to the sale of Medicare Advantage and other businesses to HCSC, and elevated expenses weighed on results. Adjusted operating income rose 1% to $1.9 billion, reflecting resilience in key segments [1].

Cigna's business model is more diversified than that of UnitedHealth Group. It operates through two units: Evernorth, a medical services and pharmacy benefit manager (PBM), which is 60% of earnings, and Cigna Healthcare, a traditional health insurer. Evernorth is split evenly between the pure services and the PBM, both of which have been growing well. The medical services segment is expected to be the fastest growing, at 8-12% annually [2].

The sector has been under significant pressure due to increasing medical costs and political pressures. Cigna has managed to navigate these challenges by selling its Medicare Advantage business in March 2025, just before the bad news on Medical Advantage pricing started to emerge from market leaders like UnitedHealth Group and Centene (CNC). This strategic move has helped Cigna reduce its exposure to Medicare risks and maintain a lower Medical Care Ratio (MCR) [2].

Cigna's stock has mirrored UNH's performance despite dramatically different earnings reports and outlooks. This could indicate that the market is underestimating the quality of Cigna's business. Forward price to earnings metrics suggest that Cigna is cheaply valued compared to peers, indicating potential upside [2].

Wall Street analysts are generally positive on Cigna, indicating a 35% upside price target. This reflects the company's operational flexibility and lower risk profile compared to UnitedHealth Group. While both companies share exposure to generic medical inflation, Cigna's lower MCR and more diversified revenue stream provide a more attractive investment proposition [2].

In conclusion, Cigna's resilience amidst the healthcare sector turmoil, combined with its diversified business model and positive analyst outlook, makes it a more attractive investment compared to UnitedHealth Group. Investors should consider Cigna as a buy, particularly given its potential for growth and margin improvements.

References:
[1] https://www.ainvest.com/news/cigna-1-5b-surge-82nd-volume-10-23-drop-earnings-clash-market-trends-2508/
[2] https://seekingalpha.com/article/4809512-cigna-more-interesting-than-unitedhealth-group