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Lincoln National Corp Valuation – January 2019 $LNC

Company Profile (excerpt from Reuters): Lincoln National Corporation, incorporated on January 5, 1968, is a holding company, which operates insurance and retirement businesses through its subsidiary companies. The Company operates in four segments: Annuities, Retirement Plan Services, Life Insurance and Group Protection. Through its segments, the Company sells a range of wealth protection, accumulation and retirement income products and solutions. These products include fixed and indexed annuities, variable annuities, universal life insurance (UL), variable universal life insurance (VUL), linked-benefit UL, term life insurance, indexed universal life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – January 2019

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 $10,979,281,905 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 1825.44% Pass
5. Moderate PEmg Ratio PEmg < 20 7.33 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 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 $7.01
MG Growth Estimate 9.73%
MG Value $195.99
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $101.65
MG Value based on 0% Growth $59.59
Market Implied Growth Rate -0.58%
Current Price $51.40
% of Intrinsic Value 26.23%

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability 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 $4.25 in 2014 to an estimated $7.01 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.58% annual earnings loss 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 Lincoln National Corporation revealed the company was trading below its Graham Number of $117.31. The company pays a dividend of $0.87 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 7.33, which was below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Lincoln National Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $117.31
PEmg 7.33
PB Ratio 0.75
Dividend Yield 1.69%
TTM Dividend $0.87
Number of Consecutive Years of Dividend Growth 0

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 9/1/2018
Long-Term Debt & Capital Lease Obligation $5,804,000,000
Total Assets $303,850,000,000
Intangible Assets $1,757,000,000
Total Liabilities $288,780,000,000
Shares Outstanding (Diluted Average) 218,469,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.70
Dec2017 $9.22
Dec2016 $5.03
Dec2015 $4.51
Dec2014 $5.67
Dec2013 $4.52
Dec2012 $4.56
Dec2011 $0.69
Dec2010 $2.30
Dec2009 -$1.85
Dec2008 $0.22
Dec2007 $4.43
Dec2006 $5.13
Dec2005 $4.72
Dec2004 $3.95
Dec2003 $2.85
Dec2002 $0.26
Dec2001 $2.85
Dec2000 $3.03
Dec1999 $2.30
Dec1998 $2.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.01
Dec2017 $6.37
Dec2016 $4.92
Dec2015 $4.57
Dec2014 $4.25
Dec2013 $3.04
Dec2012 $1.93
Dec2011 $0.80
Dec2010 $1.25
Dec2009 $1.33
Dec2008 $3.17
Dec2007 $4.51
Dec2006 $4.16
Dec2005 $3.42
Dec2004 $2.71
Dec2003 $2.15
Dec2002 $1.93

Recommended Reading:

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10 Most Undervalued Companies for the Enterprising Investor – February 2016
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10 Companies Benjamin Graham Would Invest In Today – March 2016
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Sun Life Financial Inc Valuation – August 2018 $TSE-SLF
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Genworth Financial Inc Valuation – June 2018 $GNW
Prudential Financial Inc Valuation – June 2018 $PRU

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.

Lincoln Electric Holdings Inc Valuation – August 2018 $LECO

Company Profile (excerpt from Reuters): Lincoln Electric Holdings, Inc., incorporated on January 22, 1998, is a manufacturer of welding, cutting and brazing products. The Company operates through three segments: Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment primarily includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global cutting, soldering and brazing businesses, as well as the retail business in the United States.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LECO – August 2018

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,046,009,933 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.62 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 133.48% Pass
6. Moderate PEmg Ratio PEmg < 20 27.39 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.58 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.62 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.80 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.43
MG Growth Estimate 1.82%
MG Value $41.62
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $49.74
MG Value based on 0% Growth $29.16
Market Implied Growth Rate 9.44%
Current Price $93.94
% of Intrinsic Value 225.70%

Lincoln Electric Holdings, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 Overvalued after growing its EPSmg (normalized earnings) from $3.06 in 2014 to an estimated $3.43 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Lincoln Electric Holdings, Inc. revealed the company was trading above its Graham Number of $36.88. The company pays a dividend of $1.44 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 27.39, which was below the industry average of 29.32, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-1.19.

Lincoln Electric Holdings, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$1.19
Graham Number $36.88
PEmg 27.39
Current Ratio 2.62
PB Ratio 6.58
Current Dividend $1.44
Dividend Yield 1.53%
Number of Consecutive Years of Dividend Growth 20

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 6/1/2018
Total Current Assets $1,411,567,000
Total Current Liabilities $539,758,000
Long-Term Debt $700,194,000
Total Assets $2,433,731,000
Intangible Assets $233,982,000
Total Liabilities $1,490,223,000
Shares Outstanding (Diluted Average) 66,121,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.26
Dec2017 $3.71
Dec2016 $2.91
Dec2015 $1.70
Dec2014 $3.18
Dec2013 $3.54
Dec2012 $3.06
Dec2011 $2.56
Dec2010 $1.53
Dec2009 $0.57
Dec2008 $2.47
Dec2007 $2.34
Dec2006 $2.04
Dec2005 $1.45
Dec2004 $0.97
Dec2003 $0.66
Dec2002 $0.34
Dec2001 $0.98
Dec2000 $0.92
Dec1999 $0.81
Dec1998 $0.96

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.43
Dec2017 $3.01
Dec2016 $2.74
Dec2015 $2.70
Dec2014 $3.06
Dec2013 $2.75
Dec2012 $2.25
Dec2011 $1.86
Dec2010 $1.60
Dec2009 $1.68
Dec2008 $2.11
Dec2007 $1.78
Dec2006 $1.37
Dec2005 $0.98
Dec2004 $0.76
Dec2003 $0.68
Dec2002 $0.73

Recommended Reading:

Other ModernGraham posts about the company

Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO

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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.

Olin Corp Valuation – March 2018 $OLN

Company Profile (obtained from Marketwatch): Olin Corp. engages in manufacturing of chemicals products. It operates through the following segments: Chlor Alkali Products and Vinyls, Epoxy, and Winchester. The Chlor Alkali and Vinyls segment manufactures and sells chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells epoxy materials, which includes allyl chloride, epichlorohydrin, liquid epoxy resins and downstream products such as converted epoxy resins and additives. The Winchester segment manufactures sporting ammunition, reloading components, small caliber military ammunition and components & industrial cartridges. The company was founded by Franklin W. Olin in 1892 and is headquartered in Clayton, MO.

OLN Chart

OLN data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of OLN – March 2018

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,419,053,051 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.78 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -6.87% Fail
6. Moderate PEmg Ratio PEmg < 20 20.40 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.00 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.78 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.85 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.59
MG Growth Estimate -2.15%
MG Value $6.67
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $23.05
MG Value based on 0% Growth $13.51
Market Implied Growth Rate 5.95%
Current Price $32.43
% of Intrinsic Value 485.96%

Olin Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.86 in 2014 to an estimated $1.59 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.95% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Olin Corporation revealed the company was trading above its Graham Number of $26.61. The company pays a dividend of $0.8 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.4, which was below the industry average of 31.55, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.13.

Olin Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$28.13
Graham Number $26.61
PEmg 20.40
Current Ratio 1.78
PB Ratio 2.00
Current Dividend $0.80
Dividend Yield 2.47%
Number of Consecutive Years of Dividend Growth 0

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 12/1/2017
Total Current Assets $1,699,200,000
Total Current Liabilities $954,300,000
Long-Term Debt $3,611,300,000
Total Assets $9,218,300,000
Intangible Assets $2,698,500,000
Total Liabilities $6,464,600,000
Shares Outstanding (Diluted Average) 169,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.91
Dec2017 $3.26
Dec2016 -$0.02
Dec2015 -$0.01
Dec2014 $1.33
Dec2013 $2.21
Dec2012 $1.85
Dec2011 $2.99
Dec2010 $0.81
Dec2009 $1.73
Dec2008 $2.07
Dec2007 -$0.12
Dec2006 $2.06
Dec2005 $1.86
Dec2004 $0.80
Dec2003 -$0.42
Dec2002 -$0.63
Dec2001 -$0.22
Dec2000 $1.80
Dec1999 $0.45
Dec1998 $1.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.59
Dec2017 $1.40
Dec2016 $0.67
Dec2015 $1.24
Dec2014 $1.86
Dec2013 $2.05
Dec2012 $1.94
Dec2011 $1.83
Dec2010 $1.27
Dec2009 $1.50
Dec2008 $1.37
Dec2007 $0.96
Dec2006 $1.24
Dec2005 $0.65
Dec2004 $0.12
Dec2003 -$0.08
Dec2002 $0.26

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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.

Lincoln National Corp Valuation – February 2018 $LNC

Company Profile (obtained from Marketwatch): Lincoln National Corp. is a holding company, which operates multiple insurance and retirement businesses through its subsidiary companies. It provides advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. The company operates through the following segments: Annuities, Retirement Plan Services, Life Insurance, Group Protection, and Other Operations. The Annuities segment provides tax-deferred investment growth and lifetime income opportunities for its clients by offering fixed and variable annuities. The Retirement Plan Services segment includes employers with retirement plan products and services, primarily in the defined contribution retirement plan marketplaces. The Life Insurance segment focuses on the creation and protection of wealth for its clients by providing life insurance products, including term insurance, both single and survivorship versions of universal life insurance, variable universal life insurance and indexed universal life insurance products. The Group Protection segment offers group non-medical insurance products, which includes term life, disability, dental, vision and accident and critical illness benefits and services to the employer marketplace through various forms of employee-paid and employer-paid plans. The Other Operations segment includes the financial data for operations. Lincoln National was founded in 1968 and is headquartered in Radnor, PA.

LNC Chart

LNC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – February 2018

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 $16,668,239,187 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 1878.07% Pass
5. Moderate PEmg Ratio PEmg < 20 10.56 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.98 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 $7.21
MG Growth Estimate 10.43%
MG Value $211.75
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $104.55
MG Value based on 0% Growth $61.29
Market Implied Growth Rate 1.03%
Current Price $76.17
% of Intrinsic Value 35.97%

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability 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 $4.25 in 2014 to an estimated $7.21 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.03% 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 Lincoln National Corporation revealed the company was trading below its Graham Number of $121.79. The company pays a dividend of $0.87 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 10.56, which was below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Lincoln National Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $121.79
PEmg 10.56
PB Ratio 0.98
Dividend Yield 1.14%
TTM Dividend $0.87
Number of Consecutive Years of Dividend Growth 0

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 12/1/2017
Long-Term Debt & Capital Lease Obligation $4,894,000,000
Total Assets $281,763,000,000
Intangible Assets $9,771,000,000
Total Liabilities $264,441,000,000
Shares Outstanding (Diluted Average) 222,745,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.30
Dec2017 $9.22
Dec2016 $5.03
Dec2015 $4.51
Dec2014 $5.67
Dec2013 $4.52
Dec2012 $4.56
Dec2011 $0.69
Dec2010 $2.30
Dec2009 -$1.85
Dec2008 $0.22
Dec2007 $4.43
Dec2006 $5.13
Dec2005 $4.72
Dec2004 $3.95
Dec2003 $2.85
Dec2002 $0.26
Dec2001 $2.85
Dec2000 $3.03
Dec1999 $2.30
Dec1998 $2.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.21
Dec2017 $6.37
Dec2016 $4.92
Dec2015 $4.57
Dec2014 $4.25
Dec2013 $3.04
Dec2012 $1.93
Dec2011 $0.80
Dec2010 $1.25
Dec2009 $1.33
Dec2008 $3.17
Dec2007 $4.51
Dec2006 $4.16
Dec2005 $3.42
Dec2004 $2.71
Dec2003 $2.15
Dec2002 $1.93

Recommended Reading:

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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.

Lincoln Electric Holdings Inc Valuation – Initial Coverage $LECO

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 Lincoln Electric Holdings Inc (LECO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lincoln Electric Holdings, Inc. a manufacturer of welding, cutting and brazing products. The Company’s welding products include arc welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumable electrodes and fluxes. The Company’s operating segments include North America Welding, Europe Welding, Asia Pacific Welding, South America Welding and The Harris Products Group. The Company’s North America Welding segment includes welding operations in the United States, Canada and Mexico. The Europe Welding segment includes welding operations in Europe, Russia, Africa and the Middle East. The Asia Pacific Welding segment primarily includes welding operations in China and Australia. The South America Welding segment primarily includes welding operations in Brazil, Colombia and Venezuela. The Harris Products Group includes the Company’s global cutting, soldering and brazing businesses, as well as the retail business in the United States.

LECO Chart

LECO data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LECO – 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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,698,917,978 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.69 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 75.47% Pass
6. Moderate PEmg Ratio PEmg < 20 29.93 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.07 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.91
MG Growth Estimate 0.87%
MG Value $29.79
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $42.19
MG Value based on 0% Growth $24.73
Market Implied Growth Rate 10.72%
Current Price $87.08
% of Intrinsic Value 292.35%

Lincoln Electric Holdings, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 Overvalued after growing its EPSmg (normalized earnings) from $2.75 in 2013 to an estimated $2.91 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Lincoln Electric Holdings, Inc. revealed the company was trading above its Graham Number of $28.71. The company pays a dividend of $1.31 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 29.93, which was above the industry average of 22.25. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.76.

Lincoln Electric Holdings, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.76
Graham Number $28.71
PEmg 29.91
Current Ratio 2.69
PB Ratio 8.34
Current Dividend $1.31
Dividend Yield 1.51%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $1,043,713,000
Total Current Liabilities $388,107,000
Long-Term Debt $703,704,000
Total Assets $1,943,437,000
Intangible Assets $362,007,000
Total Liabilities $1,231,960,000
Shares Outstanding (Diluted Average) 68,156,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.40
Dec2016 $2.91
Dec2015 $1.70
Dec2014 $3.18
Dec2013 $3.54
Dec2012 $3.06
Dec2011 $2.56
Dec2010 $1.53
Dec2009 $0.57
Dec2008 $2.47
Dec2007 $2.34
Dec2006 $2.04
Dec2005 $1.45
Dec2004 $0.97
Dec2003 $0.66
Dec2002 $0.34
Dec2001 $0.98
Dec2000 $0.92
Dec1999 $0.81
Dec1998 $0.96
Dec1997 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
Dec2016 $2.74
Dec2015 $2.70
Dec2014 $3.06
Dec2013 $2.75
Dec2012 $2.25
Dec2011 $1.86
Dec2010 $1.60
Dec2009 $1.68
Dec2008 $2.11
Dec2007 $1.78
Dec2006 $1.37
Dec2005 $0.98
Dec2004 $0.76
Dec2003 $0.68
Dec2002 $0.73
Dec2001 $0.92

Recommended Reading:

Other ModernGraham posts about the company

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

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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.

Olin Corporation Valuation – June 2016 $OLN

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 – June 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 Olin Corporation (OLN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Olin Corporation is a manufacturer and distributor of chemical products, and ammunition. The Company operates through three segments: Chlor Alkali Products and Vinyls, Epoxy and Winchester. The Chlor Alkali Products and Vinyls segment manufactures and sells chlorine and caustic soda, ethylene dichloride and vinyl chloride monomer, methyl chloride, methylene chloride, chloroform, carbon tetrachloride, perchloroethylene, trichloroethylene and vinylidene chloride, hydrogen, bleach products and potassium hydroxide. The Epoxy segment produces and sells a range of epoxy materials, including allyl chloride, epichlorohydrin, liquid epoxy resins and downstream products, such as converted epoxy resins and additives. The Epoxy segment serves an array of applications, including wind energy, electrical laminates and consumer goods. The Winchester segment produces and sells sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

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ModernGraham Valuation of OLN – June 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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,246,433,118 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.79 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -35.60% Fail
6. Moderate PEmg Ratio PEmg < 20 23.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.67 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.79 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.38 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

OLN value chart June 2016

EPSmg $1.03
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $14.95
MG Value based on 0% Growth $8.77
Market Implied Growth Rate 7.40%
Current Price $24.04
% of Intrinsic Value N/A

Olin Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.94 in 2012 to an estimated $1.03 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.4% 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.

Olin Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

OLN charts June 2016

Net Current Asset Value (NCAV) -$29.48
Graham Number $18.42
PEmg 23.31
Current Ratio 1.79
PB Ratio 1.67
Current Dividend $0.80
Dividend Yield 3.33%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

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ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,877,400,000
Total Current Liabilities $1,049,600,000
Long-Term Debt $3,627,900,000
Total Assets $9,116,900,000
Intangible Assets $2,809,300,000
Total Liabilities $6,744,100,000
Shares Outstanding (Diluted Average) 165,100,000

Earnings Per Share History

Next Fiscal Year Estimate $1.05
Dec2015 -$0.01
Dec2014 $1.33
Dec2013 $2.21
Dec2012 $1.85
Dec2011 $2.99
Dec2010 $0.81
Dec2009 $1.73
Dec2008 $2.07
Dec2007 -$0.12
Dec2006 $2.06
Dec2005 $1.86
Dec2004 $0.80
Dec2003 -$0.42
Dec2002 -$0.63
Dec2001 -$0.22
Dec2000 $1.80
Dec1999 $0.45
Dec1998 $1.63
Dec1997 $3.00
Dec1996 $5.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.03
Dec2015 $1.24
Dec2014 $1.86
Dec2013 $2.05
Dec2012 $1.94
Dec2011 $1.83
Dec2010 $1.27
Dec2009 $1.50
Dec2008 $1.37
Dec2007 $0.96
Dec2006 $1.24
Dec2005 $0.65
Dec2004 $0.12
Dec2003 -$0.08
Dec2002 $0.26
Dec2001 $0.91
Dec2000 $1.80

Recommended Reading:

Other ModernGraham posts about the company

47 Companies in the Spotlight This Week – 5/16/15
Olin Corporation Annual Valuation – 2015 $OLN
Olin Corporation Quarterly Valuation – January 2015 $OLN
13 Companies in the Spotlight This Week – 10/4/14
Olin Corporation Quarterly Stock Valuation – September 2014 $OLN

Other ModernGraham posts about related companies

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FMC Corporation Valuation – January 2016 Update $FMC
Eastman Chemical Co Valuation – January 2016 $EMN
Dow Chemical Co Valuation – January 2016 Update $DOW
Ashland Inc Valuation – January 2016 Update $ASH
Albemarle Corp Valuation – February 2016 $ALB

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.

Lincoln National Corporation Valuation – May 2016 $LNC

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 – March 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 Lincoln National Corporation (LNC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lincoln National Corporation is a holding company, which operates insurance and retirement businesses through subsidiary companies. The Company sells a range of wealth protection, accumulation and retirement income products and solutions, through its business segments. It operates through four segments: Annuities segment, which offers fixed (including indexed) and variable annuities; Retirement Plan Services segment, which provides employers with retirement plan products and services; Life Insurance segment, which focuses in the creation and protection of wealth through life insurance products, and Group Protection, which offers principally group non-medical insurance products. These products include fixed and indexed annuities, variable annuities, universal life insurance, variable universal life insurance, linked-benefit UL, term life insurance, indexed universal life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.

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ModernGraham Valuation of LNC – May 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 $10,807,010,723 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 468.93% Pass
5. Moderate PEmg Ratio PEmg < 20 8.73 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 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

LNC value chart May 2016

EPSmg $5.16
MG Growth Estimate 15.00%
MG Value $198.66
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $74.82
MG Value based on 0% Growth $43.86
Market Implied Growth Rate 0.12%
Current Price $45.07
% of Intrinsic Value 22.69%

Lincoln National Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability 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 $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.12% 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.

Lincoln National Corporation fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

LNC charts May 2016

Graham Number $89.07
PEmg 8.73
PB Ratio 0.75
Current Dividend $1.10
Dividend Yield 2.44%
Number of Consecutive Years of Dividend Growth 7

[/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 3/1/2016
Long-term Debt $5,650,000,000
Total Assets $255,718,000,000
Intangible Assets $11,257,000,000
Total Liabilities $241,060,000,000
Shares Outstanding (Diluted Average) 245,100,000

Earnings Per Share History

Next Fiscal Year Estimate $5.75
12/1/2015 $4.51
12/1/2014 $5.67
12/1/2013 $4.52
12/1/2012 $4.56
12/1/2011 $0.92
12/1/2010 $2.54
12/1/2009 -$1.85
12/1/2008 $0.22
12/1/2007 $4.43
12/1/2006 $5.13
12/1/2005 $4.72
12/1/2004 $3.95
12/1/2003 $2.85
12/1/2002 $0.49
12/1/2001 $3.05
12/1/2000 $3.19
12/1/1999 $2.30
12/1/1998 $2.51
12/1/1997 $4.49
12/1/1996 $2.46

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.16
12/1/2015 $4.59
12/1/2014 $4.30
12/1/2013 $3.12
12/1/2012 $2.04
12/1/2011 $0.94
12/1/2010 $1.33
12/1/2009 $1.33
12/1/2008 $3.17
12/1/2007 $4.51
12/1/2006 $4.17
12/1/2005 $3.47
12/1/2004 $2.79
12/1/2003 $2.27
12/1/2002 $2.09
12/1/2001 $2.96
12/1/2000 $2.94

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – May 2016
10 Companies Benjamin Graham Would Invest In Today – March 2016
Stocks Trading Below Their Graham Number – March 2016
Stocks Trading Below Their Graham Number – February 2016
10 Most Undervalued Companies for the Enterprising Investor – February 2016

Other ModernGraham posts about related companies

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The Travelers Companies Valuation – May 2016 $TRV
Unum Group Valuation – March 2016 $UNM
Principal Financial Group Inc Valuation – March 2016 $PFG
Assurant Inc Valuation – February 2016 $AIZ
American International Group Inc Stock Valuation – February 2016 $AIG
Chubb Ltd Stock Valuation – February 2016 $CB
Humana Inc Stock Valuation – February 2016 $HUM
Prudential Financial Inc Valuation – February 2016 $PRU
Anthem Inc Valuation – February 2016 $ANTM

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.

Lincoln National Corp Valuation – November 2015 Update $LNC

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 Lincoln National Corp (LNC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lincoln National Corporation is a holding company, which operates multiple insurance and retirement businesses through subsidiary companies. The Company sells a range of wealth protection, accumulation and retirement income products and solutions, through its business segments. These products include fixed and indexed annuities, variable annuities, universal life insurance, variable universal life insurance, linked-benefit UL, term life insurance, indexed universal life insurance, employer-sponsored retirement plans and services, and group life, disability and dental. It operates in four segments: Annuities offers fixed (including indexed) and variable annuities. Retirement Plan Services provides employers with retirement plan products and services. Life Insurance focuses in the creation and protection of wealth through life insurance products. Group Protection offers principally group non-medical insurance products.

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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 LNC – 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 $13,436,435,695 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 52.66% Pass
5. Moderate PEmg Ratio PEmg < 20 11.68 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.96 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

LNC value Chart November 2015

EPSmg $4.65
MG Growth Estimate 15.00%
MG Value $179.03
Opinion Undervalued
MG Value based on 3% Growth $67.43
MG Value based on 0% Growth $39.53
Market Implied Growth Rate 1.59%
Current Price $54.32
% of Intrinsic Value 30.34%

Lincoln National Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $4.65 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.59% 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 Lincoln National Corp (LNC)?  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

LNC Charts November 2015

Graham Number $78.23
PEmg 11.68
PB Ratio 0.96
Dividend Yield 1.77%
Number of Consecutive Years of Dividend Growth 6

 

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ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $5,604,000,000
Total Assets $249,532,000,000
Intangible Assets $2,273,000,000
Total Liabilities $235,131,000,000
Shares Outstanding (Diluted Average) 253,211,000

Earnings Per Share History

Next Fiscal Year Estimate $4.74
Dec14 $5.67
Dec13 $4.52
Dec12 $4.56
Dec11 $0.69
Dec10 $2.30
Dec09 -$1.85
Dec08 $0.22
Dec07 $4.43
Dec06 $5.13
Dec05 $4.72
Dec04 $3.95
Dec03 $2.85
Dec02 $0.26
Dec01 $2.85
Dec00 $3.03
Dec99 $2.30
Dec98 $2.51
Dec97 $4.49
Dec96 $2.44
Dec95 $2.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.65
Dec14 $4.25
Dec13 $3.04
Dec12 $1.93
Dec11 $0.80
Dec10 $1.25
Dec09 $1.33
Dec08 $3.17
Dec07 $4.51
Dec06 $4.16
Dec05 $3.42
Dec04 $2.71
Dec03 $2.15
Dec02 $1.93
Dec01 $2.85
Dec00 $2.89
Dec99 $2.81

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – November 2015
10 Companies Benjamin Graham Would Invest In Today – November 2015
10 Most Undervalued Companies for the Enterprising Investor – October 2015
5 Undervalued Companies for Value Investors with a High Beta – October 2015
The Best Stocks of the Financial Services Industry – September 2015

Other ModernGraham posts about related companies

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Cincinnati Financial Corp Valuation – November 2015 Update $CINF
American Financial Group Inc. Valuation – November 2015 Update $AFG
Loews Corporation Valuation – November 2015 Update $L
Allstate Corporation Valuation – October 2015 Update $ALL
Humana Inc. Valuation – October 2015 Update $HUM
Torchmark Corporation Valuation – October 2015 Update $TMK

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.

Lincoln National Corporation Analysis – August 2015 Update $LNC

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Lincoln National Corporation (LNC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Lincoln National Corporation is a holding company, which operates multiple insurance and retirement businesses through subsidiary companies. The Company sells a range of wealth protection, accumulation and retirement income products and solutions, through its business segments. These products include fixed and indexed annuities, variable annuities, universal life insurance, variable universal life insurance, linked-benefit UL, term life insurance, indexed universal life insurance, employer-sponsored retirement plans and services, and group life, disability and dental. It operates in four segments: Annuities offers fixed (including indexed) and variable annuities. Retirement Plan Services provides employers with retirement plan products and services. Life Insurance focuses in the creation and protection of wealth through life insurance products. Group Protection offers principally group non-medical insurance products.
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Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – August 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 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 Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 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

EPSmg 5.48
MG Growth Estimate 15.00%
MG Value $211.11
Opinion Undervalued
MG Value based on 3% Growth $79.51
MG Value based on 0% Growth $46.61
Market Implied Growth Rate 0.88%
Current Price $56.22
% of Intrinsic Value 26.63%

Lincoln National Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, while the Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $5.48 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.88% 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 Lincoln National Corporation (LNC)?  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

LNC charts August 2015

PEmg 10.25
PB Ratio 0.98
Dividend Yield 1.28%
Number of Consecutive Years of Dividend Growth 6

 

Useful Links:

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Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $5,529,000,000
Total Assets $255,214,000,000
Intangible Assets $11,423,000,000
Total Liabilities $240,515,000,000
Shares Outstanding (Diluted Average) 255,140,000

Earnings Per Share History

Next Fiscal Year Estimate $7.24
Dec14 $5.67
Dec13 $4.52
Dec12 $4.56
Dec11 $0.69
Dec10 $2.30
Dec09 -$1.85
Dec08 $0.22
Dec07 $4.43
Dec06 $5.13
Dec05 $4.72
Dec04 $3.95
Dec03 $2.85
Dec02 $0.26
Dec01 $2.85
Dec00 $3.03
Dec99 $2.30
Dec98 $2.51
Dec97 $4.49
Dec96 $2.44
Dec95 $2.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.48
Dec14 $4.25
Dec13 $3.04
Dec12 $1.93
Dec11 $0.80
Dec10 $1.25
Dec09 $1.33
Dec08 $3.17
Dec07 $4.51
Dec06 $4.16
Dec05 $3.42
Dec04 $2.71
Dec03 $2.15
Dec02 $1.93
Dec01 $2.85
Dec00 $2.89
Dec99 $2.81

Recommended Reading:

Other ModernGraham posts about the company

10 Companies Benjamin Graham Would Invest In Today – August 2015
5 Undervalued Companies for Value Investors with a High Beta – August 2015
5 Undervalued Companies for Value Investors with a High Beta – July 2015
5 Most Undervalued Companies for the Enterprising Investor – July 2015
10 Companies Benjamin Graham Would Invest In Today – June 2015

Other ModernGraham posts about related companies

Unum Group Analysis – August 2015 Update $UNM
Principal Financial Group Analysis – August 2015 Update $PFG
Assurant Inc. Analysis – August 2015 Update $AIZ
Arthur J Gallagher & Company Analysis – Initial Coverage $AJG
American International Group Inc. Analysis – August 2015 Update $AIG
Aspen Insurance Holdings Limited Analysis – Initial Coverage $AHL
Cincinnati Financial Corporation Analysis – August 2015 Update $CINF
American Financial Group Inc. Analysis – Initial Coverage $AFG
Allstate Corporation Analysis – July 2015 Update $ALL
Humana Inc. Analysis – July 2015 Update $HUM

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.  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.

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Lincoln National Corporation Quarterly Valuation – May 2015 $LNC

LfglogoLincoln National Corporation (LNC) is currently trading at post-financial crisis highs, but the company continues to present an intriguing investment possibility for value investors, as the company has maintained very strong earnings growth over the last few years that may not be properly factored into the market price. Stone Fox Capital reaches the conclusion that the company is at very attractive price point, and the company’s management holds the view that “long-term revenue and earnings momentum [will] continue.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is an updated look at how Lincoln National fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

LNC Chart

LNC data by YCharts

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Defensive Investor – Must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  5. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
  6. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass all 3 of the following tests or be suitable for a Defensive Investor: Score = 3/3

  1. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  2. Dividend Record – Currently pays a dividend – PASS
  3. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $58.53
MG Value $193.01
MG Opinion Undervalued
Value Based on 3% Growth $72.69
Value Based on 0% Growth $42.61
Market Implied Growth Rate 1.59%
PEmg 11.67
PB Ratio 0.94

Balance Sheet – March 2015

Total Debt $5,627,000,000
Total Assets $258,485,000,000
Intangible Assets $2,273,000,000
Total Liabilities $242,262,000,000
Outstanding Shares 260,600,000

Earnings Per Share

2015 (estimate) $5.83
2014 $5.67
2013 $4.52
2012 $4.56
2011 $0.69
2010 $2.30
2009 -$1.85
2008 $0.22
2007 $4.43
2006 $5.13
2005 $4.72

Earnings Per Share – ModernGraham

2015 (estimate) $5.01
2014 $4.25
2013 $3.04
2012 $1.93
2011 $0.80
2010 $1.25

Dividend History

LNC Dividend Chart

LNC Dividend data by YCharts

Conclusion

Lincoln National Corporation passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned by the company’s lack of earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $0.80 in 2011 to an estimated $5.01 for 2015. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for annual earnings growth of 1.59% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has been astronomical, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that the company is undervalued at the present time.

Disclaimer: The author did not hold a position in any of the companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logos taken from either the company website or Wikipedia; this article is not affiliated with the companies in any manner.

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