XL Group does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the company’s lack of earnings stability over the last ten years along with the high PEmg ratio. Similarly, the less conservative Enterprising Investor is concerned by the lack of earnings stability over the last five years. As a result, all value investors should be very cautious when proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from a loss of $0.66 in 2010 to a gain of $1.67 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 6.8% over the next 7-10 years. As a result, the ModernGraham valuation model returns an estimate of intrinsic value well above the current price, indicating the company is undervalued at the present time.
Be sure to check out previous ModernGraham valuations of XL Group (XL) for a greater perspective!
Disclaimer: The author did not hold a position in XL Group (XL) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.