Sanford C. Bernstein analyst Lance Wilkes upgraded his rating on Cigna Corp. stock to "outperform" from "market-perform," based on his conviction on the company's EPS for 2021.

Wilkes said his faith in a 2021 EPS projection of $20.23 is based on the expectation of deal synergies, which Sanford C. Bernstein expects to exceed guidance. The upgraded rating and price target reflect a low valuation that Wilkes said incorporates downside projections on pharmacy benefit manager business, but not the likely EPS growth in 2021.

Wilkes said Cigna would be somewhat insulated should regulations require PBMs to charge only administration fees, rather than retaining spread, as the Express Scripts business has large mail-order and specialty home delivery businesses.

Despite the upgrade, Wilkes is still concerned about the company's growth rate after 2021. He expects Cigna to make another "major capital allocation decision" within the next two to three years, presenting future dilution risks.

Wilkes raised his price target to $205 from $180, compared to an Aug. 5 closing price of $159, or 7.8x projected 2021 EPS. He also raised his EPS estimates to $16.71 from $16.64 for 2019 and to $18.81 from $18.62 for 2020.