ModernGraham Valuation: Cigna Corporation (CI)

moneyCompany Profile (obtained from Google Finance): Cigna Corporation (Cigna) is a holding company. Cigna is a global health service company, with insurance subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services. In the United States, these products and services are offered through employers and other groups, and in selected international markets, Cigna offers supplemental health, life and accident insurance products and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals. Cigna operates in five segments: Health Care, Disability and Life, International, Run-off Reinsurance, and Other Operations, including Corporate-owned Life Insurance. September 2013, Cigna Corporation completed its acquisition of Alegis Care, a portfolio company of Triton Pacific Capital Partners. Effective September 3, 2013, Cigna Corp acquired Home Physicians Management LLC.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass all 6 of the following tests: Score = 6/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $135.57
MG Opinion Undervalued
Value Based on 3% Growth $75.82
Value Based on 0% Growth $44.44
Market Implied Growth Rate 4.20%
PEmg 16.90
PB Ratio 2.48

Balance Sheet – 9/30/2013 

Total Debt $5,034,000,000
Total Assets $54,043,000,000
Intangible Assets $8,460,000,000
Total Liabilities $44,169,000,000
Outstanding Shares 276,940,000

Earnings Per Share

2013 (estimate) $5.32
2012 $5.70
2011 $4.84
2010 $4.89
2009 $4.73
2008 $1.04
2007 $3.88
2006 $3.44
2005 $3.28
2004 $3.81
2003 $1.47

Earnings Per Share – ModernGraham 

2013 (estimate) $5.23
2012 $4.87
2011 $4.26
2010 $3.85
2009 $3.31
2008 $2.76

Conclusion:

Cigna Corporation is an intriguing company for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of each investor type, indicating it has strong financials and a strong history.  This is a company that presents a low level of risk of significant loss for investors.  Intelligent Investors seeking to follow Benjamin Graham’s value investing methods should feel comfortable proceeding with further research into the company, but should keep in mind the 7 Key Tips to Value Investing as they do so.  From a valuation standpoint, the company has grown EPSmg (normalized earnings) from $2.76 to an estimated $5.23 for 2013 and has consistently shown a solid level of growth each year.  The market is currently implying a growth rate of 4.2%, which is below what has been seen historically.  As a result, Cigna Corporation would appear to be undervalued at the current time.

What do you think?  Do you agree that Cigna Corporation is undervalued?  What would be your assessment?  Is the company suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Cigna Corporation (CI) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill


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