Torchmark Corporation Quarterly Stock Valuation – October 2014 $TMK

Torchmark_LogoBenjamin 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 5 Undervalued Companies to Research for the Defensive Investor - October 2014.  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 Torchmark Corporation (TMK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Torchmark Corporation is an insurance holding company. The Company is financial services holding company whose affiliate Companies market life insurance and supplemental health insurance to middle-income Americans. The Company operates in three segments: life insurance, health insurance, and annuities. Life insurance products include traditional and interest-sensitive whole life insurance, as well as term life insurance. Health products are guaranteed-renewable and include Medicare Supplement, Medicare Part D, cancer, accident, long-term care, and limited-benefit hospital and surgical coverage’s. Annuities include fixed-benefit contracts. The Company’s primary subsidiaries are American Income Life Insurance Company (American Income), Liberty National Life Insurance Company (Liberty), Globe Life And Accident Insurance Company (Globe), United American Insurance Company (United American), and Family Heritage Life Insurance Company of America (Family Heritage).
TMK Chart

TMK data by YCharts

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

Key Data:

Recent Price $51.31
MG Value $88.43
MG Opinion Undervalued
Value Based on 3% Growth $53.15
Value Based on 0% Growth $31.16
Market Implied Growth Rate 2.75%
PEmg 14.00
PB Ratio 1.52

Balance Sheet – 6/30/2014

Total Debt $991,000,000
Total Assets $19,652,000,000
Intangible Assets $442,000,000
Total Liabilities $15,143,000,000
Outstanding Shares 133,300,000

Earnings Per Share

2014 (estimate) $4.05
2013 $3.79
2012 $3.61
2011 $3.02
2010 $2.70
2009 $2.17
2008 $2.27
2007 $2.44
2006 $2.28
2005 $2.08
2004 $1.86

Earnings Per Share – ModernGraham

2014 (estimate) $3.67
2013 $3.33
2012 $2.99
2011 $2.63
2010 $2.41
2009 $2.26

Dividend History
TMK Dividend Chart

TMK Dividend data by YCharts

Conclusion:

Torchmark is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, indicating there should be no initial concerns with the company’s financials.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.41 in 2010 to an estimated $3.67 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.75% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Torchmark Corporation (TMK) for better perspective!

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 Torchmark Corporation (TMK)?  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.

Disclaimer:  The author did not hold a position in Torchmark Corporation (TMK) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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