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Raymond James analysts upgraded UnitedHealth Group (NYSE:UNH) and Cigna Corp (NYSE:CI) to Strong Buy in a note on Wednesday, stating the firm is now more constructive on the two names.
The analysts also raised the price target on UNH to $630 per share and maintained CI’s price target at $350. “We think our thesis has run its course, and the set-up going forward is more favorable,” the analysts wrote.
They outlined three reasons for the call: “1) many of the policy overhangs (RADV, MA rate notice, ICD-10) are behind us, and most notably, the MA final notice released on Friday phases in the ICD-10 coding changes over 3 years, a win for the industry; 2) P/E multiples have contracted significantly as UNH now trades at 17.6x 2024E adj. EPS (down from ~22.5x 2024E EPS at peak), and CI now trades at 9.1x 2024E adj. EPS (down from ~12x 2024E EPS at peak); and 3) we still think that UNH and CI’s PBM assets are well-positioned to have a strong 2023 (with ~9% and ~5% EBIT growth estimated, respectively), and we remain convinced that legislative risks are minimal.”
While they noted that risks to the upgrades include the impact of Medicaid redeterminations and the impact of a recession on commercial enrollment, they believe “the ‘set-up’ has improved markedly” with a valuation reset and improving regulatory backdrop.
