Insurance Stocks

Torchmark Corporation Valuation – August 2016 $TMK

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 Torchmark Corporation (TMK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Torchmark Corporation is an insurance holding company. The Company, through its subsidiaries, provides a range of life and health insurance products and annuities to a broad base of customers. The Company’s segments include life insurance, health insurance, annuities and investment. The life insurance segment offers whole-life insurance and term life insurance. The Health insurance products are guaranteed-renewable and include Medicare Supplement, critical illness, accident, long-term care and limited-benefit supplemental hospital and surgical coverage’s. Annuities include fixed-benefit contracts. The Company markets its insurance products through various distribution channels, each of which sells the products of its insurance segments. Its primary subsidiaries are American Income Life Insurance Company, Liberty National Life Insurance Company, Globe Life And Accident Insurance Company, United American Insurance Company and Family Heritage Life Insurance Company of America.

TMK Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TMK – August 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 $7,451,929,363 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 83.09% Pass
5. Moderate PEmg Ratio PEmg < 20 15.14 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 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

TMK value chart August 2016

EPSmg $4.12
MG Growth Estimate 5.71%
MG Value $82.14
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $59.78
MG Value based on 0% Growth $35.04
Market Implied Growth Rate 3.32%
Current Price $62.40
% of Intrinsic Value 75.97%

Torchmark Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.99 in 2012 to an estimated $4.12 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.32% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Torchmark Corporation revealed the company was trading below its Graham Number of $62.9. The company pays a dividend of $0.55 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 15.14, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Torchmark Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

TMK charts August 2016

Graham Number $62.90
PEmg 15.14
PB Ratio 1.57
Dividend Yield 0.88%
TTM Dividend $0.55
Number of Consecutive Years of Dividend Growth 11

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $1,133,928,000
Total Assets $21,574,040,000
Intangible Assets $441,591,000
Total Liabilities $16,696,282,000
Shares Outstanding (Diluted Average) 122,748,000

Earnings Per Share History

Next Fiscal Year Estimate $4.35
Dec2015 $4.16
Dec2014 $4.09
Dec2013 $3.79
Dec2012 $3.60
Dec2011 $3.02
Dec2010 $2.70
Dec2009 $2.17
Dec2008 $2.27
Dec2007 $2.44
Dec2006 $2.28
Dec2005 $2.08
Dec2004 $1.86
Dec2003 $1.66
Dec2002 $1.41
Dec2001 $1.26
Dec2000 $1.25
Dec1999 $0.91
Dec1998 $0.77
Dec1997 $1.08
Dec1996 $0.97

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.12
Dec2015 $3.92
Dec2014 $3.68
Dec2013 $3.33
Dec2012 $2.99
Dec2011 $2.63
Dec2010 $2.41
Dec2009 $2.26
Dec2008 $2.27
Dec2007 $2.20
Dec2006 $2.00
Dec2005 $1.79
Dec2004 $1.60
Dec2003 $1.41
Dec2002 $1.23
Dec2001 $1.11
Dec2000 $1.02

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – February 2016
26 Best Stocks For Value Investors This Week – 2/6/16
Torchmark Corp Valuation – February 2016 $TMK
13 Best Stocks For Value Investors This Week – 10/17/15
13 Best Stocks For Value Investors This Week – 10/17/15

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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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