Out of the 105 in-depth slides in the deck at Cigna's investor day on Monday, emerged a dollar figure that was perhaps the most stunning of any presented (and probably the most important to longer-term minded health care investors).
Fifty billion dollars.
That's how much operating cash flow Cigna (CI) said it plans to generate from 2021 to 2025. By comparison in the past five years combined, Cigna has generated $31.7 billion in operating cash flow, according to Bloomberg data. The eye-opening cash flow guidance reflects Cigna's longer-term adjusted sales growth target of 6% to 8% (also shared on investor day) and expected 10% to 13% average annual adjusted EPS growth.
Those projections mostly factor in (among other things) growth in new customers for insurance, pharma benefit services via Express Scripts, and inroads into tele-health.
Cigna President and CEO David Cordani tells Yahoo Finance Live he will be very aggressive in spending that cash in a bid to bolster shareholder returns. He calls it a "compelling shareholder message."
"We have told shareholders that about 15% to 20% of that [cash] will be consumed every year for internal growth. And we run a capex budget for new innovation in an excess of a billion dollars a year. About 20% of the residual will be in a dividend," Cordani explained. "And then 80% of the residual — or $8 billion — about 80% of that will be available for share repurchase or M&A. That's about three times the rate of what has been the last few years. So massive shareholder value creation."
Cigna shares rose 2% on Monday as investors digested the new growth and capital allocation targets.
To followers of Cigna, the more aggressive use of cash moving forward may not come as a complete shock. The company repurchased some $4.1 billion of its stock in 2020, per its filings. That's up from $2 billion in 2019.
On Jan. 6, Cigna announced its first ever quarterly dividend. It will pay out $1.00 a share on March 25 to shareholders of record as of the close of trading on March 10. The payout amounts to $1.4 billion for all of 2021.
The stock now fetches a forward dividend yield of 1.73%, according to Yahoo Finance Premium data.
"We believe [the dividend announcement] reflects Cigna's confidence in the company's strong capital positioning, cashflow generation capabilities, and long-term growth potential," said Mizuho Securities analyst Ann Hynes.
And then on Feb. 26, Cigna said it would acquire tele-health provider MDLive for an undisclosed sum.
The market appears to have picked up on the cash deployment story unfolding at Cigna.
Cigna shares have gained 32% over the last six months, outperforming rivals UnitedHealth (up 12%) and Humana (down 3.3%).
"We believe the strong cash flow generation is partly helped by the company's solid execution of the Express Scripts integration over the past two years, and we believe the momentum will continue in the near-term," added Hynes.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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