Cigna Stock Drops on Big Pharma Buyout

CI stock has breached a recent layer of technical support

Mar 8, 2018 at 9:53 AM
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Insurance giant Cigna Corporation (NYSE:CI) said it is buying pharmacy benefits firm Express Scripts Holding Company (NASDAQ:EXPR) for roughly $54 billion in cash and stock. Including Express Scripts' debt, the deal is worth around $67 billion. While EXPR shares have shot roughly 13% higher this morning to trade at $82.65 -- a discount to the per-share offer price of $96.03 -- CI stock has slumped 9.4% to trade at $176.00.

While CI stock was in a channel of higher highs and lows from late March through late January, it sold off sharply after notching an all-time peak of $227.12 on Jan. 29 -- due in part to a massive healthcare initiative announced by Amazon (AMZN), JPMorgan Chase (JPM), and Berkshire Hathaway (BRK.A). While this retreat found a foothold atop Cigna's 180-day moving average, it has breached this foothold in today's pullback.

With Cigna shares now down 10% year-to-date, analysts could be encouraged to start downwardly revising their upbeat ratings. Currently, 10 of 13 brokerages maintain a "buy" or better rating, with not a single "sell" on the books. Plus, the average 12-month price target of $236.29 stands at a 26% premium to CI stock's present perch.

This optimism is seen in the options pits, too, albeit amid relatively low absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), CI's 10-day call/put volume ratio of 3.50 ranks in the 89th annual percentile, indicating calls have been bought to open over puts at a faster-than-usual clip. A shift in sentiment among options traders could create headwinds, too.

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