Insurance Stocks

Cigna Corp Valuation – January 2016 Update $CI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cigna Corp (CI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cigna Corporation (Cigna), together with its subsidiaries, is a health services company. The Company offers medical, dental, disability, life and accident insurance and related products and services. The Company operates in three segments: Global Health Care, Global Supplemental Benefits and Group Disability and Life. The Global Health Care segment aggregates the commercial and Government operating segments. The Global Supplemental Benefits segment offers supplemental health, life and accident insurance products. The Group Disability and Life segment provides group long-term and short-term disability insurance, group life insurance, accident and specialty insurance and related services. Cigna offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals. It offers personal accident insurance coverage, consisting of accidental death and dismemberment and travel accident insurance.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CI

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,444,200,015 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 152.81% Pass
5. Moderate PEmg Ratio PEmg < 20 19.42 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.96 Fail
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CI value chart January 2016

EPSmg $6.88
MG Growth Estimate 10.08%
MG Value $197.09
Opinion Undervalued
MG Value based on 3% Growth $99.73
MG Value based on 0% Growth $58.46
Market Implied Growth Rate 5.46%
Current Price $133.60
% of Intrinsic Value 67.79%

Cigna Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PB ratio.  The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.11 in 2011 to an estimated $6.88 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.46% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cigna Corp (CI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CI charts January 2016

Graham Number $91.29
PEmg 19.42
PB Ratio 2.96
Dividend Yield 0.03%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Long-Term Debt $5,056,000,000
Total Assets $56,909,000,000
Intangible Assets $6,040,000,000
Total Liabilities $45,135,000,000
Shares Outstanding (Diluted Average) 260,519,000

Earnings Per Share History

Next Fiscal Year Estimate $8.10
Dec2014 $7.83
Dec2013 $5.18
Dec2012 $5.61
Dec2011 $4.59
Dec2010 $4.65
Dec2009 $4.73
Dec2008 $1.05
Dec2007 $3.87
Dec2006 $3.43
Dec2005 $4.17
Dec2004 $3.48
Dec2003 $1.50
Dec2002 -$1.06
Dec2001 $2.08
Dec2000 $1.95
Dec1999 $3.00
Dec1998 $2.02
Dec1997 $1.63
Dec1996 $1.54

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.88
Dec2014 $6.04
Dec2013 $5.08
Dec2012 $4.72
Dec2011 $4.11
Dec2010 $3.77
Dec2009 $3.37
Dec2008 $2.86
Dec2007 $3.60
Dec2006 $3.08
Dec2005 $2.62
Dec2004 $1.75
Dec2003 $1.09
Dec2002 $1.12
Dec2001 $2.19
Dec2000 $2.17
Dec1999 $2.07

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies with a Low Beta – November 2015
Cigna Corporation Analysis – October 2015 Update $CI
The Best Companies of the Insurance Industry – October 2015
5 Undervalued Companies with a Low Beta – August 2015
5 Undervalued Companies with a Low Beta – July 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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