Insurance Stocks

XL Group Ltd Valuation – July 2016 $XL

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 Companies Benjamin Graham Would Invest In Today – July 2016.  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 XL Group Ltd (XL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): XL Group plc is an insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises. The Company operates through two segments: Insurance and Reinsurance. The Company’s Insurance segment is organized into four product divisions: Global Casualty (Casualty); Global Energy Property, & Construction (EPC); Global Professional (Professional), and Global Specialty (Specialty). Its insurance operations provide insurance policies for corporate risks that may require large limits, use of a captive insurance company and the need for a program of locally issued policies. The Reinsurance segment provides casualty, property risk, property catastrophe, specialty, and other reinsurance lines on a global basis with business being written on both a proportional and non-proportional treaty basis, and also on a facultative basis.

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XL Chart

XL data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of XL – July 2016

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 $10,494,679,110 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
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 -163.17% Fail
5. Moderate PEmg Ratio PEmg < 20 15.69 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.72 Pass
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

XL value chart July 2016

EPSmg $2.21
MG Growth Estimate 15.00%
MG Value $84.91
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $31.98
MG Value based on 0% Growth $18.75
Market Implied Growth Rate 3.60%
Current Price $34.61
% of Intrinsic Value 40.76%

XL Group plc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.01 in 2012 to an estimated $2.21 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.6% 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.

XL Group plc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

XL charts July 2016

Graham Number $33.03
PEmg 15.69
PB Ratio 0.72
Dividend Yield 2.31%
TTM Dividend $0.80
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $2,646,324,000
Total Assets $61,198,240,000
Intangible Assets $2,217,973,000
Total Liabilities $47,534,308,000
Shares Outstanding (Diluted Average) 285,082,000

Earnings Per Share History

Next Fiscal Year Estimate $1.01
Dec2015 $4.15
Dec2014 $0.69
Dec2013 $3.63
Dec2012 $2.10
Dec2011 -$1.52
Dec2010 $1.73
Dec2009 $0.61
Dec2008 -$11.02
Dec2007 $1.15
Dec2006 $9.60
Dec2005 -$9.14
Dec2004 $8.13
Dec2003 $2.69
Dec2002 $2.88
Dec2001 -$4.55
Dec2000 $4.03
Dec1999 $3.62
Nov1998 $6.20
Nov1997 $7.84
Nov1996 $5.39

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.21
Dec2015 $2.47
Dec2014 $1.53
Dec2013 $1.74
Dec2012 -$0.01
Dec2011 -$1.32
Dec2010 -$0.67
Dec2009 -$1.83
Dec2008 -$2.12
Dec2007 $2.38
Dec2006 $2.94
Dec2005 -$0.26
Dec2004 $3.67
Dec2003 $1.53
Dec2002 $1.45
Dec2001 $1.63
Dec2000 $4.95

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 4/4/15
XL Group Annual Valuation – 2015 $XL
17 Companies in the Spotlight This Week – 3/29/14
XL Group PLC (XL) Annual Valuation – 2014

Other ModernGraham posts about related companies

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The Travelers Companies Valuation – May 2016 $TRV
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Principal Financial Group Inc Valuation – March 2016 $PFG
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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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