If you wish to trounce the market, the way in which to do it’s by paying an affordable value for an organization that’s able to persistently rising its earnings for an extended time frame.
The Cigna Group (NYSE: CI), an insurance coverage and managed healthcare firm, is an ideal instance.
Take an extended have a look at its stunning historic earnings chart…
Over the previous two-plus many years, Cigna’s earnings per share (EPS) have elevated by a stellar 609%.
But when I had been to increase the chart all the way in which again to 1984, it could look even higher. That chart would present you that Cigna’s EPS has elevated by a ridiculous 161,600%!
That is what we need to see as buyers, of us: progress, progress and extra progress on a per-share foundation.
It’s EPS progress that drives up a inventory’s value over time.
As you’d count on, Cigna’s EPS progress has executed super issues for long-term shareholders.
The inventory has soundly crushed the S&P 500 within the quick time period, the long run and in all places in between.
A $10,000 funding in Cigna in 2000 would have grown to $113,470 at the moment.
In the meantime, the identical funding within the S&P 500 would have turn out to be simply $28,820.
And after I have a look at the corporate at the moment, I don’t assume something has modified.
Every little thing about this inventory nonetheless appears interesting.
In Cigna’s most up-to-date investor presentation, administration signaled that it expects the corporate’s robust EPS progress to proceed.
Administration’s official steering for long-term EPS progress is 10% to 13% per yr.
That’s excellent, and given the corporate’s historical past, we’ve each cause to consider it would occur.
Plus, Cigna will report third quarter earnings subsequent Thursday morning, and I count on its EPS to have grown by no less than 9% over the earlier quarter’s EPS.
Amazingly, we are able to presently purchase shares of this long-term earnings progress machine at a really engaging valuation.
Cigna’s full-year steering for 2023 is for EPS to be no less than $24.70.
The corporate is buying and selling at round $304 as I write, which suggests it’s buying and selling at simply 12.3 occasions earnings.
For a corporation that’s anticipated to develop its EPS at a double-digit clip going ahead, that could be a steal of a deal.
I feel Cigna ought to commerce at greater than 20 occasions earnings!
What makes Cigna much more engaging is the truth that the enterprise can also be producing giant quantities of money move and returning it to shareholders.
Because the finish of 2018, Cigna has diminished its share depend from 380 million to 295 million through a share buyback plan – and it’s purchased again these shares at very engaging valuations.
Extremely, whereas it’s been gobbling up its personal shares on the open market at discount costs, Cigna has additionally been in a position to enormously strengthen its stability sheet by shaving off $10 billion in long-term debt.
The one approach an organization can purchase again tons of inventory and pay down debt is by being a powerful, money flow-rich enterprise.
Lastly, on high of all this, Cigna has additionally massively elevated the dividend it pays to shareholders.
Its present dividend yield is 1.6%, and I’d count on the dividend to continue to grow sooner or later.
At this level, there’s nothing I don’t like about Cigna’s inventory.
We now have robust, double-digit EPS progress projected for the long run.
We now have a inventory valuation that may be very low cost for a confirmed progress inventory like this.
And we’ve bucketloads of money being returned to shareholders by way of buybacks, debt discount and dividends.
Contemplating all of this, I see this inventory’s exceptional long-term run persevering with.
The Worth Meter charges The Cigna Group as being “Extraordinarily Undervalued.”
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