Stock Analysis on Net

Cigna Group (NYSE:CI)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Cigna Group, dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.31%
0 DPS01 4.92
1 DPS1 5.48 = 4.92 × (1 + 11.36%) 5.01
2 DPS2 6.05 = 5.48 × (1 + 10.44%) 5.06
3 DPS3 6.63 = 6.05 × (1 + 9.51%) 5.07
4 DPS4 7.20 = 6.63 × (1 + 8.59%) 5.04
5 DPS5 7.75 = 7.20 × (1 + 7.67%) 4.96
5 Terminal value (TV5) 507.86 = 7.75 × (1 + 7.67%) ÷ (9.31%7.67%) 325.44
Intrinsic value of Cigna Group common stock (per share) $350.59
Current share price $322.50

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Cigna Group common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Cigna Group common stock βCI 0.51
 
Required rate of return on Cigna Group common stock3 rCI 9.31%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCI = RF + βCI [E(RM) – RF]
= 4.65% + 0.51 [13.79%4.65%]
= 9.31%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Cigna Group, PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Common dividends declared 1,452 1,387 1,347 15 15
Shareholders’ net income 5,164 6,668 5,365 8,458 5,104
Revenues from external customers 194,099 179,361 172,529 159,157 152,176
Total assets 152,761 143,932 154,889 155,451 155,774
Shareholders’ equity 46,223 44,872 47,112 50,321 45,338
Financial Ratios
Retention rate1 0.72 0.79 0.75 1.00 1.00
Profit margin2 2.66% 3.72% 3.11% 5.31% 3.35%
Asset turnover3 1.27 1.25 1.11 1.02 0.98
Financial leverage4 3.30 3.21 3.29 3.09 3.44
Averages
Retention rate 0.85
Profit margin 3.63%
Asset turnover 1.13
Financial leverage 3.27
 
Dividend growth rate (g)5 11.36%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Shareholders’ net income – Common dividends declared) ÷ Shareholders’ net income
= (5,1641,452) ÷ 5,164
= 0.72

2 Profit margin = 100 × Shareholders’ net income ÷ Revenues from external customers
= 100 × 5,164 ÷ 194,099
= 2.66%

3 Asset turnover = Revenues from external customers ÷ Total assets
= 194,099 ÷ 152,761
= 1.27

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 152,761 ÷ 46,223
= 3.30

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.85 × 3.63% × 1.13 × 3.27
= 11.36%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($322.50 × 9.31%$4.92) ÷ ($322.50 + $4.92)
= 7.67%

where:
P0 = current price of share of Cigna Group common stock
D0 = the last year dividends per share of Cigna Group common stock
r = required rate of return on Cigna Group common stock


Dividend growth rate (g) forecast

Cigna Group, H-model

Microsoft Excel
Year Value gt
1 g1 11.36%
2 g2 10.44%
3 g3 9.51%
4 g4 8.59%
5 and thereafter g5 7.67%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 11.36% + (7.67%11.36%) × (2 – 1) ÷ (5 – 1)
= 10.44%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 11.36% + (7.67%11.36%) × (3 – 1) ÷ (5 – 1)
= 9.51%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 11.36% + (7.67%11.36%) × (4 – 1) ÷ (5 – 1)
= 8.59%