Cigna (CI) Set to Expand in Telehealth Via MDLIVE Buyout - March 1, 2021

Cigna Corp.’s (CI – Free Report) unit Evernorth has entered into a definitive agreement to acquire MDLIVE, a privately-held leading 24/7 virtual care delivery platform.

Evernorth is the leading health services portfolio of Cigna that will gain an industry-leading platform for providing virtual care and life-saving services amid the COVID-19 pandemic.

MDLIVE is an appropriate fit in Cigna’s portfolio, given high its customer and provider satisfaction ratings. MDLIVE also has a sizable and forward-thinking client base, class-leading provider network, brand recognition among customers and consumers, along with an experience in medical as well as behavioral health.

The deal is likely to close in second-quarter 2021. Cigna continues to expect to deliver 2021 adjusted earnings per share of at least $20, inclusive of the impact of the MDLIVE acquisition.

This move by the company is accurately timed to make the most of the growing opportunities of telehealth services. The COVID-19 pandemic has served as a major catalyst that fueled a rise in the use of telemedicine. This momentum is expected to prevail even after the pandemic ends. Recent surveys show that many Americans plan to continue their virtual healthcare visits even after the current crisis is over.

This growing market certainly presents a tremendous opportunity for companies. Per a report by Fortune Business Insights, the global telehealth market size is expected to reach $559.52 billion in 2027 from $61.40 billion in 2019, at a CAGR of 25.2% during the forecast period. The report mentioned that the cost-effective nature of teleconsultation, reduction in waiting time in outpatient departments and easy access were the factors that led to an increased preference for telehealth services.

Meanwhile, the report mentioned that one of the major driving factors behind the increasing popularity of telehealth services is a rise in healthcare costs across many countries. Notably, Statista estimated that U.S. health expenditure is set to reach $6.2 trillion in 2028.

Such a scenario bodes well for telehealth stocks since the expected rise in healthcare cost is sure to make patients opt for less-expensive teleconsultation services. In fact, per a survey by McKinsey & Company last year, 76% of the survey respondents indicated that they were “highly or moderately likely to use telehealth” going forward.

American Well Corporation (AMWL – Free Report) also came out with an IPO in September 2020 to ride the tide of telehealth services. The company, founded in 2006, provides a platform that supports telehealth for around 62,000 healthcare providers, including more than 2,000 hospitals.

Health insurance companies have been turning toward this market. In January, health insurance leader UnitedHealth Group Inc. (UNH – Free Report) launched a Virtual Primary Care service to provide virtual health care services to eligible members in 11 states. The same will be rolled out to cover more states.

Last week, another health insurer Humana Inc. (HUM – Free Report) inked a deal with Missouri-based Mercy to enhance virtual healthcare for patients.

We believe this deal will be a positive long-term factor for Cigna, which acquired Express Scripts, a pharmacy benefit manager, in 2018 and transformed from just being a health insurer to a healthcare entity, with full focus on growing the health service business.

The stock has gained 15.8% in six months’ time compared with the industry’s rally of 2.5%.

Cigna currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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