Insurance Stocks

Selective Insurance Group Valuation – Initial Coverage $SIGI

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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 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 Selective Insurance Group (SIGI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Selective Insurance Group, Inc. is a holding company with insurance subsidiaries. The Company operates its business through four segments: Standard Commercial Lines, Standard Personal Lines, E&S Lines and Investments. Its Standard Commercial Lines segment consists of insurance products and services provided in the standard marketplace to its commercial customers, including businesses and local government agencies. Its Standard Personal Lines segment consists of insurance products and services, including flood insurance coverage that it writes through the National Flood Insurance Program, provided to individuals acquiring coverage in the standard marketplace. Its excess and surplus (E&S) Lines segment consists of insurance products and services provided to customers who have not obtained coverage in the standard marketplace. Its investment segment invests insurance premiums, as well as amounts generated through its capital management strategies.

SIGI Chart

SIGI data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of SIGI – January 2017

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 $2,478,700,768 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 92.18% Pass
5. Moderate PEmg Ratio PEmg < 20 17.74 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.56 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

EPSmg $2.40
MG Growth Estimate 15.00%
MG Value $92.22
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $34.73
MG Value based on 0% Growth $20.36
Market Implied Growth Rate 4.62%
Current Price $42.50
% of Intrinsic Value 46.09%

Selective Insurance Group 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 Undervalued after growing its EPSmg (normalized earnings) from $0.72 in 2012 to an estimated $2.4 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.62% 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.

At the time of valuation, further research into Selective Insurance Group revealed the company was trading above its Graham Number of $39.44. The company pays a dividend of $0.6 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 17.74, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Selective Insurance Group receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $39.44
PEmg 17.74
PB Ratio 1.56
Dividend Yield 1.41%
TTM Dividend $0.60
Number of Consecutive Years of Dividend Growth 3

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Long-Term Debt & Capital Lease Obligation $378,551,000
Total Assets $7,363,233,000
Intangible Assets $7,849,000
Total Liabilities $5,788,329,000
Shares Outstanding (Diluted Average) 57,810,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.54
Dec2015 $2.85
Dec2014 $2.47
Dec2013 $1.87
Dec2012 $0.68
Dec2011 $0.40
Dec2010 $1.20
Dec2009 $0.68
Dec2008 $0.82
Dec2007 $2.59
Dec2006 $2.65
Dec2005 $2.35
Dec2004 $4.07
Dec2003 $2.20
Dec2002 $1.56
Dec2001 $0.49
Dec2000 $0.51
Dec1999 $0.94
Dec1998 $0.87
Dec1997 $1.14
Dec1996 $0.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.40
Dec2015 $2.10
Dec2014 $1.59
Dec2013 $1.09
Dec2012 $0.72
Dec2011 $0.87
Dec2010 $1.27
Dec2009 $1.47
Dec2008 $2.08
Dec2007 $2.73
Dec2006 $2.72
Dec2005 $2.55
Dec2004 $2.35
Dec2003 $1.38
Dec2002 $0.93
Dec2001 $0.68
Dec2000 $0.80

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Infinity Property and Casualty Corp Valuation – Initial Coverage $IPCC
Hartford Financial Services Group Inc Valuation – December 2016 $HIG
AFLAC Inc Valuation – December 2016 $AFL
Arthur J Gallagher & Co Valuation – December 2016 $AJG
Aspen Insurance Holdings Limited Valuation – December 2016 $AHL
MetLife Inc Valuation – December 2016 $MET
Travelers Companies Inc Valuation – November 2016 $TRV
Allstate Corp Valuation – November 2016 $ALL
Unum Group Valuation – August 2016 $UNM
Principal Financial Group Inc Valuation – August 2016 $PFG

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.

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