Cigna Corporation Analysis – October 2015 Update $CI

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Cigna Corporation (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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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CI – October 2015

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 $35,594,315,428 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 154.49% Pass
5. Moderate PEmg Ratio PEmg < 20 20.15 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.16 Fail
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 October 2015

EPSmg $6.92
MG Growth Estimate 10.25%
MG Value $200.79
Opinion Undervalued
MG Value based on 3% Growth $100.41
MG Value based on 0% Growth $58.86
Market Implied Growth Rate 5.82%
Current Price $139.50
% of Intrinsic Value 69.48%

Cigna Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios while 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 the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.11 in 2011 to an estimated $6.92 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.82% annual earnings growth 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 within a margin of safety relative to 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 Corporation (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 October 2015

Graham Number $90.20
PEmg 20.15
PB Ratio 3.16
Dividend Yield 0.03%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Long-Term Debt $5,046,000,000
Total Assets $57,132,000,000
Intangible Assets $6,041,000,000
Total Liabilities $45,842,000,000
Shares Outstanding (Diluted Average) 255,730,000

Earnings Per Share History

Next Fiscal Year Estimate $8.24
Dec14 $7.83
Dec13 $5.18
Dec12 $5.61
Dec11 $4.59
Dec10 $4.65
Dec09 $4.73
Dec08 $1.05
Dec07 $3.87
Dec06 $3.43
Dec05 $4.17
Dec04 $3.48
Dec03 $1.50
Dec02 -$1.06
Dec01 $2.08
Dec00 $1.95
Dec99 $3.00
Dec98 $2.02
Dec97 $1.63
Dec96 $1.54
Dec95 $0.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.92
Dec14 $6.04
Dec13 $5.08
Dec12 $4.72
Dec11 $4.11
Dec10 $3.77
Dec09 $3.37
Dec08 $2.86
Dec07 $3.60
Dec06 $3.08
Dec05 $2.62
Dec04 $1.75
Dec03 $1.09
Dec02 $1.12
Dec01 $2.19
Dec00 $2.17
Dec99 $2.09

Recommended Reading:

Other ModernGraham posts about the company

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
The 9 Best Stocks For Value Investors This Week – 7/18/15
Cigna Corporation Analysis – July 2015 Update $CI

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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 review our detailed disclaimer.

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