ModernGraham Quarterly Valuation Of Cigna Corp - April 2014

Apr. 9.14 | About: Cigna Corp. (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 Corp fares in the ModernGraham valuation model.

CI Chart

CI data by YCharts

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

Key Data:

Recent Price $80.87
MG Value $132.17
MG Opinion Undervalued
Value Based on 3% Growth $75.14
Value Based on 0% Growth $44.05
Market Implied Growth Rate 3.55%
PEmg 15.61
PB Ratio 2.11
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Balance Sheet - 12/31/2013

Total Debt $5,014,000,000
Total Assets $54,336,000,000
Intangible Assets $8,436,000,000
Total Liabilities $43,769,000,000
Outstanding Shares 275,530,000
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Earnings Per Share

2013 $5.18
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
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Earnings Per Share - ModernGraham

2013 $5.18
2012 $4.87
2011 $4.26
2010 $3.85
2009 $3.31
2008 $2.76
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Dividend History

CI Dividend Chart

CI Dividend data by YCharts


Cigna Corp is an interesting company for both Defensive Investors and Enterprising Investors. The company passes all of the requirements of either investor type, though it should be noted that the dividend rate is extremely low. All value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of ModernGraham's valuation of UnitedHealth Group (NYSE:UNH) and 5 Low PEmg Companies for the Defensive Investor.

From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.31 in 2009 to $5.18 in 2013. This demonstrated level of growth outpaces the market's implied estimate of 3.55% earnings growth, and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market 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? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Cigna Corp (NYSE:CI) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.