Insurance Stocks

Ace Limited Valuation – November 2015 Update $ACE

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Ace Limited (ACE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ACE Limited is a holding company. The Company is a global insurance and reinsurance company. The Company offers commercial insurance products and service offerings, such as risk management programs, loss control and engineering and complex claims management. It provides specialized insurance products to niche areas, such as aviation and energy. It also offers personal lines insurance coverage, including homeowners, automobile, valuables, umbrella liability and recreational marine products. In addition, it supplies personal accident, supplemental health and life insurance to individuals in select countries. The Company’s segments include Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance and Life.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of ACE – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $36,813,713,277 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 55.06% Pass
5. Moderate PEmg Ratio PEmg < 20 13.26 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.29 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

ACE value Chart November 2015

EPSmg $8.68
MG Growth Estimate 5.26%
MG Value $165.03
Opinion Undervalued
MG Value based on 3% Growth $125.80
MG Value based on 0% Growth $73.75
Market Implied Growth Rate 2.38%
Current Price $115.02
% of Intrinsic Value 69.70%

Ace Limited qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2011 to an estimated $8.68 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.38% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Ace Limited (ACE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ACE Charts November 2015

Graham Number $132.54
PEmg 13.26
PB Ratio 1.29
Dividend Yield 2.30%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Long-Term Debt $4,157,000,000
Total Assets $97,760,000,000
Intangible Assets $5,713,000,000
Total Liabilities $68,633,000,000
Shares Outstanding (Diluted Average) 327,173,000

Earnings Per Share History

Next Fiscal Year Estimate $8.68
Dec14 $8.42
Dec13 $10.92
Dec12 $7.89
Dec11 $4.52
Dec10 $9.11
Dec09 $7.55
Dec08 $3.50
Dec07 $7.66
Dec06 $6.91
Dec05 $3.31
Dec04 $3.88
Dec03 $5.25
Dec02 $0.27
Dec01 -$0.78
Dec00 $2.31
Dec99 $1.85
Sep98 $2.96
Sep97 $2.69
Sep96 $2.69

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.68
Dec14 $8.51
Dec13 $8.37
Dec12 $6.90
Dec11 $6.42
Dec10 $7.23
Dec09 $6.12
Dec08 $5.29
Dec07 $5.93
Dec06 $4.68
Dec05 $3.17
Dec04 $2.80
Dec03 $2.10
Dec02 $0.79
Dec01 $1.30
Dec00 $2.39
Dec99 $2.30

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
10 Low PE Stocks for the Defensive Investor – August 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Ace Limited Analysis – August 2015 Update $ACE
10 Companies Benjamin Graham Would Invest In Today – June 2015

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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