Cigna stock surges after company reportedly backs away from Humana talks, announces $10 billion buyback

December 12, 2023

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Cigna (CI) stock popped on Monday, rising as much as 16%, following a report from The Wall Street Journal that said the company had abandoned efforts to merge with rival Humana (HUM) while announcing plans to repurchase $10 billion worth of its own shares.

Shares of Humana fell as much as 2% on Monday.

“We believe Cigna’s shares are significantly undervalued and repurchases represent a value-enhancing deployment of capital as we work to support high-quality care, improved affordability, and better health outcomes,” Cigna CEO David Cordani said in a press release announcing the new buyback plans.

A report late last month from the Journal said the two companies were discussing a potential deal, news which sent shares of Cigna and Humana down 8% and 5%, respectively, the following day.

Some also eyed the deal with skepticism due to the Biden Administration’s crackdown on mergers and acquisitions.

Still, Cigna believed its deals would have been achievable despite tough regulations, the Journal said. The company was also considering selling its Medicare advantage business to ward off antitrust concerns.

In a note to clients on Monday, Jefferies analysts David Windlay and Steven Couche praised Cigna for walking away from the deal with Humana.

The analysts said that their deal model didn’t foresee earnings per share accretion until year three following the merger. The firm also speculated Cigna CEO Cordani didn’t have the necessary support from investors for a successful merger with Humana.

“Regardless of the reason, taking advantage of a negative reaction to deal reports by directing almost all [free cash flow] toward buybacks is music to [Cigna] holders’ value-sensitive ears,” the analysts wrote.

In this photo illustration, the American multinational managed healthcare and insurance company Cigna logo is seen displayed on a smartphone with an economic stock exchange index graph in the background. (Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)

The additional $10 billion of stock buybacks announced by Cigna on Monday brings their total planned repurchases to $11.3 billion. Cigna’s market cap stood at around $88 billion as of Monday afternoon.

The company also plans to use “the majority of its discretionary cash flow for share repurchase in 2024,” according to the press release, and to repurchase at least $5 billion of common stock between now and the end of the first half of 2024. The company also reaffirmed its 2023 annual guidance on Monday.

“As we look at the broader landscape and the strategic opportunities before us, we will remain financially disciplined with a clear focus on executing against our strategy, delivering value for our shareholders, and investing in our future,” Cordani said in a release. “In light of the current environment, we will consider bolt-on acquisitions aligned with our strategy, as well as value-enhancing divestitures.”

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