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Investing.com -- Cigna Group is contending with elevated industry-wide medical costs that are expected to weigh on its Healthcare segment in 2025, according to CFRA, which downgraded the stock to Hold in a note Tuesday.

“CI faces industry-wide cost pressures from stop-loss plans and higher medical utilization including deferred pandemic care,” CFRA analysts wrote, noting this dynamic will likely affect earnings growth next year despite recent gains in the company’s pharmacy business.

Cigna’s medical cost ratio (MCR), which tracks the share of premiums spent on claims, rose to 83.2% in 2024, up from 81.3% in 2023. 

The company expects that ratio to remain elevated in 2025, guiding for an average of 83.2% to 84.2%. “This reflects higher costs from stop-loss plans,” CFRA said.

The firm projects 2025 earnings per share of $29.67, up 9% from 2024, and sees EPS growing 11% in 2026 to $35.00. 

Cigna’s long-term EPS growth target has been raised to a 12% midpoint, up from 11.5%, supported by a $6 billion increase to its share repurchase authorization.

Despite the headwinds in its Healthcare unit, CFRA highlighted positives in Cigna’s Evernorth segment, which “benefits from healthy pharmaceutical volumes and services.” 

They said that in 2024, Evernorth’s growth was fueled by a 20-million-member pharmacy contract win from Centene (NYSE:CNC) and strong specialty drug volumes.

CFRA also supported Cigna’s $3.7 billion divestiture of its Medicare businesses to Health Care Service Corporation, calling it “a strategically sound move we expect to be margin accretive.” 

CFRA’s 12-month price target of $392 on the stock reflects a 13.2x multiple of 2025 EPS, slightly above Cigna’s five-year average, justified by “balance sheet improvement, pharmaceutical business momentum in Evernorth, and strength in Commercial health insurance.”

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