Here is a look at how Cigna Corporation (CI) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:
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
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- 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
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- 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
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
|Value Based on 3% Growth||$75.82|
|Value Based on 0% Growth||$44.44|
|Market Implied Growth Rate||4.20%|
Balance Sheet - 9/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
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?
Disclosure: 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.