Insurance Stocks

Chubb Ltd Valuation – March 2017 $CB

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 – February 2017.  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 Chubb Ltd (CB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Chubb Limited (Chubb), formerly ACE Limited, is a holding company. The Company, through its subsidiaries, provides a range of insurance and reinsurance products to insureds across the world. The Company’s segments include North America Commercial P&C Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance and Life Insurance. It provides traditional and specialty property and casualty (P&C) coverage for industrial, commercial and mid-market companies with claims and risk engineering capabilities to serve companies of various sizes. Its commercial P&C business is focused on various corporate customers that are served by retail brokers, middle market and small commercial companies served by retail independent agents and brokers, and specialty excess and surplus lines distributed through wholesale brokers. On the consumer insurance side, it offers a range of products for individual consumers and their families.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CB – March 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 $65,482,678,553 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 36.06% Pass
5. Moderate PEmg Ratio PEmg < 20 15.15 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.37 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 $9.25
MG Growth Estimate 1.59%
MG Value $108.10
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $134.17
MG Value based on 0% Growth $78.65
Market Implied Growth Rate 3.32%
Current Price $140.15
% of Intrinsic Value 129.65%

Chubb Ltd 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 Overvalued after growing its EPSmg (normalized earnings) from $8.37 in 2013 to an estimated $9.25 for 2017. This level of demonstrated earnings growth does not support 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 below the price.

At the time of valuation, further research into Chubb Ltd revealed the company was trading below its Graham Number of $152.22. The company pays a dividend of $2.74 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 15.15, 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.

Chubb Ltd performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $152.22
PEmg 15.15
PB Ratio 1.37
Dividend Yield 1.96%
TTM Dividend $2.74
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $12,610,000,000
Total Assets $159,786,000,000
Intangible Assets $22,095,000,000
Total Liabilities $111,511,000,000
Shares Outstanding (Diluted Average) 471,613,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.94
Dec2016 $8.87
Dec2015 $8.62
Dec2014 $8.42
Dec2013 $10.92
Dec2012 $7.89
Dec2011 $4.52
Dec2010 $9.11
Dec2009 $7.55
Dec2008 $3.50
Dec2007 $7.66
Dec2006 $6.91
Dec2005 $3.31
Dec2004 $3.88
Dec2003 $5.25
Dec2002 $0.27
Dec2001 -$0.78
Dec2000 $2.31
Dec1999 $1.85
Sep1998 $2.96
Sep1997 $2.69

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.25
Dec2016 $8.92
Dec2015 $8.66
Dec2014 $8.51
Dec2013 $8.37
Dec2012 $6.90
Dec2011 $6.42
Dec2010 $7.23
Dec2009 $6.12
Dec2008 $5.29
Dec2007 $5.93
Dec2006 $4.68
Dec2005 $3.17
Dec2004 $2.80
Dec2003 $2.10
Dec2002 $0.79
Dec2001 $1.30

Recommended Reading:

Other ModernGraham posts about the company

Chubb Ltd Stock Valuation – February 2016 $CB
Dividend Growth Stocks for Intelligent Investors – February 2016
Dividend Growth Stocks for the Intelligent Investor – November 2015
Dividend Growth Stocks for the Intelligent Investor – October 2015
The Best Companies of the Insurance Industry – October 2015

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Berkshire Hathaway Inc Valuation – January 2017 $BRK.B
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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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