According to Investopedia:
“A chief financial officer (CFO) is the senior executive responsible for managing the financial actions of a company. The CFO’s duties include tracking cash flow and financial planning as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions.” (1)
Put more succinctly, the CFO counts the money. Chief Financial Officers know the financial health of their companies best. The CFO is the most inside of insiders, in our opinion. So, we pay close attention when those who examine the books open their checkbooks and buy company stock.
We pay double attention when the CFO has a track record of buying/selling at the right time. Cigna Corporation (CI) Chief Executive Officer Eric Palmer recently bought 1000 shares of the insurance company’s stock at $168.77.(2) Easy math says the CFO’s bank account is $168,770 lighter after his purchase.
Although his bank balance might be lower, his brokerage account balance could benefit handsomely if his previous buy of Cigna is any indication. In late July 2018 he purchased 2,878 shares of CI at $177.61. The healthcare insurance provider started 2018 at $204.14, hit $227.13 by late January before falling to $164ish in early April with Palmer making his move approximately three-months later.
On November 1, 2018 Cigna stock hit $222.72 and the mid $220s in December. That’s a 24% swing in the CFO’s favor in just four-months for a $129,862.58 profit. The pattern is somewhat the same this time around with Cigna trading above $220 early in 2020, crashing like everything else during the COVID-19 meltdown, rallied to near its pre-corona high, and has since crashed again. In comes the CFO at $168.77, as we type CI is trading at $162.26; so, you can get a better price than Palmer.
There could be plenty of upside potential for Palmer and new CI investors according to Wall Street analysts. The consensus one-year price target is $242.00.(3) If they’ve made the correct call, that’s a potential profit of $79.74 per share or a 49.14% gain.
Let’s see where CI could trade in the next 12-18 months based on the Street’s earnings per share (EPS) and sales forecasts for next year. For 2021, analysts expect the company to make $19.94 per share with on $163.17 billion in revenue.
For the last half-decade, investors paid an average of 14.64 times Cigna’s earnings. Airtightly, the trusty calculator says 14.64 times $19.94 equals a price tag of $291.92. The result was kind of shocking, we did it again in case of error but, to no surprise, the result was the same.
During the same timeframe, Cigna was valued at an average price to sales (P/S) ratio of 0.87. Ok, this time we used excel to generate a potential landing spot for CI stock using the five-year P/S average and next year’s revenue target. Whew, the number is an even crazier $386 per share. Right now, the average peer trades at 0.50 times sales, that would put Cigna stock at $222.18 using the consensus 2021 revenue estimate. At the low watermark since 2015 of 0.34 times the topline, the insurance provider would price out at $151.08.
Overview: Cigna Corporation (CI) appears to offer investors limited downside from it its current level based on its recent, low-end P/S history. Moreover, CI presents attractive upside based on its normal metrics for sales and earnings for the last half-decade. CFO Eric Palmer’s previous history suggests Cigna’ price might be considerably higher in the next 12-18 months (maybe sooner) as well.