The Cigna Group: Another Earnings Beat for This Growth Machine?

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If you want to trounce the market, the way to do it is by paying a reasonable price for a company that’s capable of consistently growing its earnings for a long period of time.

The Cigna Group (NYSE: CI), an insurance and managed healthcare company, is a perfect example.

Take a long look at its beautiful historical earnings chart…

Chart: Cigna's Long Run of Earnings Growth

Over the past two-plus decades, Cigna’s earnings per share (EPS) have increased by a stellar 609%.

But if I were to extend the chart all the way back to 1984, it would look even better. That chart would show you that Cigna’s EPS has increased by a ridiculous 161,600%!

This is what we want to see as investors, folks: growth, growth and more growth on a per-share basis.

It is EPS growth that drives up a stock’s price over time.

As you would expect, Cigna’s EPS growth has done tremendous things for long-term shareholders.

The stock has soundly beaten the S&P 500 in the short term, the long term and everywhere in between.

A $10,000 investment in Cigna in 2000 would have grown to $113,470 today.

Meanwhile, the same investment in the S&P 500 would have become just $28,820.

Chart: Two Decades of Beating the Market

Clearly, Cigna has been an excellent stock to buy and hold for the long term.

And when I look at the company today, I don’t think anything has changed.

Everything about this stock still looks appealing.

In Cigna’s most recent investor presentation, management signaled that it expects the company’s strong EPS growth to continue.

Management’s official guidance for long-term EPS growth is 10% to 13% per year.

That is outstanding, and given the company’s history, we have every reason to believe it will happen.

Plus, Cigna will report third quarter earnings next Thursday morning, and I expect its EPS to have grown by at least 9% over the previous quarter’s EPS.

Amazingly, we can currently buy shares of this long-term earnings growth machine at a very attractive valuation.

Cigna’s full-year guidance for 2023 is for EPS to be at least $24.70.

The company is trading at around $304 as I write, which means it is trading at just 12.3 times earnings.

For a company that is expected to grow its EPS at a double-digit clip going forward, that is a steal of a deal.

I think Cigna should trade at more than 20 times earnings!

What makes Cigna even more attractive is the fact that the business is also generating large amounts of cash flow and returning it to shareholders.

Since the end of 2018, Cigna has reduced its share count from 380 million to 295 million via a share buyback plan – and it’s bought back those shares at very attractive valuations.

Chart: Cigna's Rapidly Shrinking Share Count

Incredibly, while it’s been gobbling up its own shares on the open market at bargain prices, Cigna has also been able to greatly strengthen its balance sheet by shaving off $10 billion in long-term debt.

Chart: Cigna's Massive Debt Reduction

The only way a company can buy back tons of stock and pay down debt is by being a strong, cash flow-rich business.

Finally, on top of all this, Cigna has also massively increased the dividend it pays to shareholders.

Its current dividend yield is 1.6%, and I’d expect the dividend to keep growing in the future.

Chart: Cigna Returning More and More Cash to Shareholders

At this point, there’s nothing I don’t like about Cigna’s stock.

We have strong, double-digit EPS growth projected for the long term.

We have a stock valuation that is very cheap for a proven growth stock like this.

And we have bucketloads of cash being returned to shareholders through buybacks, debt reduction and dividends.

Considering all of this, I see this stock’s remarkable long-term run continuing.

The Value Meter rates The Cigna Group as being “Extremely Undervalued.”

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