CIA ENERGETICA DE-SPON ADR (NYSE:CIG): A Quality Pick for the Caviar Cruise Strategy

The Caviar Cruise stock screening strategy is based on quality investing, a method that looks for companies with solid fundamentals, lasting competitive edges, and steady growth. Unlike value investing, which targets undervalued stocks, quality investing favors businesses with strong profitability, smart capital use, and the ability to weather economic ups and downs. The Caviar Cruise screen uses strict filters to find these companies, such as revenue and EBIT growth, high return on invested capital (ROIC), reasonable debt levels, and reliable profit quality.

Companhia Energética de Minas Gerais SA (NYSE:CIG), or CEMIG, fits many of these standards. The Brazilian utility company, active in electricity generation, transmission, and distribution, along with gas distribution and telecommunications, shows qualities that quality investors might like.

Key Metrics That Support CIG as a Quality Pick

1. High Return on Invested Capital (ROIC)

• CIG’s ROIC, excluding cash, goodwill, and intangibles, is 16.33%, above the Caviar Cruise minimum of 15%.
• A strong ROIC shows the company uses its capital well, generating good returns compared to its investments. This matters to quality investors because it points to a lasting edge and capable leadership.

2. Solid EBIT Growth Compared to Revenue

• While 5-year revenue growth data isn’t available, CIG’s EBIT growth (5Y CAGR) of 17.37% hints at better operational performance.
• The Caviar Cruise approach favors EBIT growth over revenue growth, as it signals pricing strength and cost efficiency—traits of a quality business.

3. Reasonable Debt Levels

• CIG’s Debt-to-Free Cash Flow (FCF) ratio of 3.59 is below the screen’s cap of 5.
• This means the company could pay off its debt in less than four years using current FCF, lowering financial risk—a key factor for long-term investors.

4. Strong Profit Quality

• CIG’s 5-year average Profit Quality of 139.7% (FCF/Net Income) is much higher than the screen’s 75% minimum.
• High profit quality shows earnings turn into real cash flow, reducing the chance of accounting issues and supporting sustainable returns for shareholders.

Fundamental Analysis Summary

CIG’s fundamental report gives it a neutral score of 6/10, with good marks for valuation and solvency but mixed growth potential. Key points include:

• Profitability: Strong ROE (25.09%) and ROA (10.96%) beat many industry peers, though operating margins are weaker.
• Valuation: With a P/E of 4.04, CIG is much cheaper than industry and S&P 500 averages.
• Dividend: A 3.29% yield and 36% 5-year growth rate are appealing, but payout sustainability is uncertain due to falling earnings forecasts.
• Risks: Earnings are projected to drop (-25.52% EPS growth), and the Altman-Z score (1.78) puts CIG in the "distress zone," though it’s better than 83% of utilities.

Why Quality Investors Might Still Like CIG

Despite short-term challenges, CIG’s high ROIC, low valuation, and strong cash flow fit the Caviar Cruise idea of owning durable businesses at fair prices. Its regulated utility work adds stability, and its dividend provides income—a mix that could attract patient investors.

To see more Caviar Cruise screen results, click here.

Disclaimer: This article is not investment advice. Always do your own research or talk to a financial advisor before making investment choices.