Stock Analysis on Net

Cigna Group (NYSE:CI)

Present Value of Free Cash Flow to Equity (FCFE)

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. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Cigna Group, free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 9.11%
01 FCFE0 9,962
1 FCFE1 11,094 = 9,962 × (1 + 11.36%) 10,168
2 FCFE2 12,029 = 11,094 × (1 + 8.43%) 10,104
3 FCFE3 12,690 = 12,029 × (1 + 5.49%) 9,769
4 FCFE4 13,014 = 12,690 × (1 + 2.56%) 9,182
5 FCFE5 12,965 = 13,014 × (1 + -0.38%) 8,384
5 Terminal value (TV5) 136,111 = 12,965 × (1 + -0.38%) ÷ (9.11%-0.38%) 88,014
Intrinsic value of Cigna Group common stock 135,620
 
Intrinsic value of Cigna Group common stock (per share) $463.89
Current share price $357.73

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

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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.61%
Systematic risk of Cigna Group common stock βCI 0.51
 
Required rate of return on Cigna Group common stock3 rCI 9.11%

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]
= 4.43% + 0.51 [13.61%4.43%]
= 9.11%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Cigna Group, PRAT model

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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
 
FCFE 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%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (104,584 × 9.11%9,962) ÷ (104,584 + 9,962)
= -0.38%

where:
Equity market value0 = current market value of Cigna Group common stock (US$ in millions)
FCFE0 = the last year Cigna Group free cash flow to equity (US$ in millions)
r = required rate of return on Cigna Group common stock


FCFE growth rate (g) forecast

Cigna Group, H-model

Microsoft Excel
Year Value gt
1 g1 11.36%
2 g2 8.43%
3 g3 5.49%
4 g4 2.56%
5 and thereafter g5 -0.38%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 11.36% + (-0.38%11.36%) × (2 – 1) ÷ (5 – 1)
= 8.43%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 11.36% + (-0.38%11.36%) × (3 – 1) ÷ (5 – 1)
= 5.49%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 11.36% + (-0.38%11.36%) × (4 – 1) ÷ (5 – 1)
= 2.56%