Insurance Stocks

Cigna Corporation Quarterly Valuation – April 2015 $CI

200px-Cigna_logo.svgCigna Corporation (NYSE:CI) presents an intriguing investment possibility for value investors, especially due to the strong earnings growth in recent years. Benjamin Graham, the father of value investing, taught that looking at the price cannot be the sole factor in investment decisions, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is an updated look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor, or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

CI Chart

CI data by YCharts

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Defensive Investor – Must pass all 6 of the following tests: Score = 4/6.

  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 (price over normalized earnings) ratio – PEmg is less than 20 – FAIL
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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

Key Data

Recent Price $131.13
MG Value $160.40
MG Opinion Fairly Valued
Value Based on 3% Growth $87.51
Value Based on 0% Growth $51.30
Market Implied Growth Rate 6.61%
PEmg 21.73
PB Ratio 3.37

Balance Sheet – December 2014

Total Debt $5,005,000,000
Total Assets $55,896,000,000
Intangible Assets $5,989,000,000
Total Liabilities $45,122,000,000
Outstanding Shares 276,700,000

Earnings Per Share

2014 $7.83
2013 $5.18
2012 $5.61
2011 $4.59
2010 $4.65
2009 $4.73
2008 $1.05
2007 $3.87
2006 $3.43
2005 $4.17
2004 $3.48

Earnings Per Share – ModernGraham

2014 $6.04
2013 $5.08
2012 $4.72
2011 $4.11
2010 $3.77
2009 $3.37

Dividend History

CI Dividend Chart

CI Dividend data by YCharts


Cigna Corporation passes all of the initial requirements of the Enterprising Investor, but not the Defensive Investor. The more conservative of the two investor types is concerned by the high PEmg and PB ratios. As a result, only Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.77 in 2010 to $6.04 for 2014. This is a strong level of demonstrated growth, which supports the market’s implied estimate for earnings growth of 6.61% over the next 7-10 years. The ModernGraham valuation model returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.


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