ModernGraham Valuation: Chubb Corp. (CB)

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Company Profile (obtained from Google Finance): The Chubb Corporation (Chubb) is a holding company for a family of property and casualty insurance companies known as the Chubb Group of Insurance Companies (the P&C Group). The P&C Group provides property and casualty insurance to businesses and individuals worldwide. The P&C Group is divided into three business units: Chubb Personal Insurance, Chubb Commercial Insurance and Chubb Specialty Insurance. Chubb Personal Insurance offers coverage of fine homes, automobiles and other personal possessions along with options for high limits of personal liability coverage. Chubb Commercial Insurance offers a range of commercial insurance products, including coverage for multiple peril, casualty, workers’ compensation and property and marine. Chubb Specialty Insurance offers a variety of professional liability products for privately and publicly owned companies, financial institutions, professional firms and healthcare organizations. Chubb Specialty Insurance also includes its surety business.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

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

  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 – PASS
  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 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  5. Moderate PEmg 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 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $93
MG Opinion Fairly Valued
Value Based on 3% Growth $99
Value Based on 0% Growth $58
Market Implied Growth Rate 2.81%
PEmg 14.12
PB Ratio 1.56

Balance Sheet – 9/30/2013 

Total Debt $3,300,000,000
Total Assets $51,067,000,000
Intangible Assets $467,000,000
Total Liabilities $35,446,000,000
Outstanding Shares 251,760,000

Earnings Per Share – Diluted

2013 (estimate) $8.63
2012 $5.69
2011 $5.76
2010 $6.76
2009 $6.18
2008 $4.92
2007 $7.01
2006 $5.98
2005 $4.47
2004 $4.01
2003 $2.23
2002 $0.80

Earnings Per Share – Modern Graham (Calculating EPSmg)

2013 (estimate) $6.86
2012 $5.94
2011 $6.08
2010 $6.22
2009 $5.87
2008 $5.57

Conclusion:

Chubb Corp is a very attractive company, having passed all of the requirements for both Defensive Investors and Enterprising Investors (note because Chubb is an insurance/financial company, the tests have been slightly modified).  The company has very strong financials, dividend history, and stable earnings.  From a valuation perspective, the company has achieved a moderate level of growth, having grown EPSmg (normalized earnings) from $5.57 in 2008 to an estimated $6.86 for 2013.  This moderate growth is in line with the market’s implied estimate of 2.81% and the company therefore would seem to be fairly valued at this time.  Investors seeking to add Chubb to their portfolio should proceed with further research to determine whether it is suitable for their individual portfolio, while keeping in mind the 7 Key Tips to Value Investing.

What do you think?  Is Chubb Corp fairly valued?  Is the company suitable for both Defensive Investors and Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Chubb Corp. at the time of publication and had no intention of entering into a position in the next 72 hours.

Photo Credit:  Andrew Magill


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