Industry Review Insurance

The Best Companies of the Insurance Industry – June 2015

Best Companies of the Insurance IndustryWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the Insurance industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 500 companies reviewed by ModernGraham, 25 were identified as being closely related to the insurance industry.  Of those, six are suitable for the Defensive Investor, eleven are suitable for the Enterprising Investor, and the remaining eight are considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 88.56% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 17.47.  The industry as a whole, therefore would appear to be fairly valued (within a margin of safety relative to the current price), particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

The following companies have been rated as the most undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Ace Limited (ACE)

200px-Ace_Limited_logo.svgAce Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2011 to an estimated $8.77 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.92% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

AFLAC Inc. (AFL)

500px-Aflac.svgAflac Inc. passes all of the initial requirements of both the Defensive Investor and the Enterprising Investor, which is a rare accomplishment indicative of the company’s strong financial position. As a result, all value investors should feel very comfortable 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 $3.65 in 2010 to $6.07 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 0.78% over the next 7-10 years. In fact, the historical growth is around 13.23% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation on Seeking Alpha)

Allstate Corporation (ALL)

500px-Allstate.svgAllstate passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor has issues with the company’s low level of earnings growth over the last ten years and the lack of earnings stability over that time frame. The Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, Allstate has grown its EPSmg (normalized earnings) from $1.94 in 2010 to $4.62 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.42% over the next 7-10 years. In fact, the historical growth is around 28% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating that the company is undervalued at the present time.  (See the full valuation)

American International Group (AIG)

220px-AIG_logo.svgAmerican International Group Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the inconsistent dividend history, as well as the lack of earnings stability or growth over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from a loss of $109.06 in 2011 to an estimated gain of $5.14 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 1.56% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Marsh & McLennan Companies (MMC)

Mmc-logoAs this stock analysis shows, Marsh & McLennan Companies is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings stability or growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.38 in 2011 to an estimated $2.56 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 7.05% annual earnings growth over the next 7-10 years and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.  (See the full valuation)

MetLife Inc. (MET)

220px-MetLife_Logo.svgMetLife passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor has issues with the company’s low level of earnings growth over the last ten years and the lack of earnings stability over that time frame. The Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.27 in 2010 to $3.77 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 2.44% over the next 7-10 years. In fact, the historical growth is around 13.12% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating that the company is undervalued at the present time.  (See the full valuation)

Principal Financial Group (PFG)

Principal_LogoPrincipal Financial Group Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.99 in 2011 to an estimated $3.47 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 3.3% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Torchmark Corporation (TMK)

Torchmark_LogoTorchmark Corporation passes all of the initial requirements of both the Defensive Investor and the Enterprising Investor, which is a rare accomplishment indicative of the company’s strong financial position. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.41 in 2010 to $3.68 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.38% over the next 7-10 years. In fact, the historical growth is around 10.53% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.  (See the full valuation)

Travelers Companies Inc. (TRV)

500px-The_Travelers_Companies.svg

Travelers Companies qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $5.25 in 2011 to an estimated $8.80 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 1.61% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

Unum Group (UNM)

Unum-logoUnum Group qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.89 in 2011 to an estimated $2.74 for 2015.  This level of demonstrated growth outpaces the market’s implied estimate of 2.08% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.  (See the full valuation)

The Full List

[level-mg-stocks-screens-subscriber]
Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ACE ACE Limited D 5/18/2015 $170.83 $103.30 60.47% 11.78 2.59%
AET Aetna Inc E 4/5/2015 $131.95 $116.00 87.91% 22.10 0.86%
AFL AFLAC Incorporated D 3/10/2015 $172.00 $61.62 35.83% 10.15 2.53%
AIG American International Group Inc E 5/9/2015 $197.84 $59.66 30.16% 11.61 0.84%
AIZ Assurant, Inc. E 5/10/2015 $85.69 $65.55 76.50% 12.65 1.83%
ALL The Allstate Corporation E 4/20/2015 $177.97 $65.82 36.98% 14.25 1.82%
ANTM Anthem Inc. E 3/12/2015 $115.82 $161.89 139.78% 19.62 1.54%
CB The Chubb Corporation D 3/13/2015 $117.36 $94.56 80.57% 12.38 2.41%
CI CIGNA Corporation E 4/17/2015 $160.40 $138.77 86.51% 22.98 0.03%
HUM Humana Inc E 4/13/2015 $154.85 $212.55 137.26% 28.08 0.55%
MET Metlife Inc E 4/22/2015 $106.09 $54.34 51.22% 14.41 2.76%
MMC Marsh & McLennan Companies, Inc. E 6/5/2015 $87.95 $57.71 65.62% 22.54 2.15%
PFG Principal Financial Group Inc E 5/10/2015 $107.22 $51.65 48.17% 14.88 2.94%
PGR The Progressive Corporation E 5/19/2015 $32.02 $27.08 84.57% 15.04 2.55%
TMK Torchmark Corporation D 4/22/2015 $89.36 $57.27 64.09% 15.56 0.94%
TRV Travelers Companies Inc D 5/15/2015 $253.10 $97.76 38.63% 11.11 2.50%
UNM Unum Group D 5/10/2015 $59.87 $35.92 60.00% 13.11 1.84%

[/level-mg-stocks-screens-subscriber]

[level-free]

To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ACE ACE Limited D 5/18/2015 $103.30 2.59%
AET Aetna Inc E 4/5/2015 $116.00 0.86%
AFL AFLAC Incorporated D 3/10/2015 $61.62 2.53%
AIG American International Group Inc E 5/9/2015 $59.66 0.84%
AIZ Assurant, Inc. E 5/10/2015 $65.55 1.83%
ALL The Allstate Corporation E 4/20/2015 $65.82 1.82%
ANTM Anthem Inc. E 3/12/2015 $161.89 1.54%
CB The Chubb Corporation D 3/13/2015 $94.56 2.41%
CI CIGNA Corporation E 4/17/2015 $138.77 0.03%
HUM Humana Inc E 4/13/2015 $212.55 0.55%
MET Metlife Inc E 4/22/2015 $54.34 2.76%
MMC Marsh & McLennan Companies, Inc. E 6/5/2015 $57.71 2.15%
PFG Principal Financial Group Inc E 5/10/2015 $51.65 2.94%
PGR The Progressive Corporation E 5/19/2015 $27.08 2.55%
TMK Torchmark Corporation D 4/22/2015 $57.27 0.94%
TRV Travelers Companies Inc D 5/15/2015 $97.76 2.50%
UNM Unum Group D 5/10/2015 $35.92 1.84%

[/level-free]

Disclaimer:
 The author did not hold a position in any company mentioned in this article 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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top