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 Unum Group (UNM) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Unum Group is a provider of disability insurance products in the United States and the United Kingdom. The Company’s business segments: Unum US, Unum UK, Colonial Life, Closed Block and Corporate. Unum US includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business. Unum UK includes insurance for group long-term disability, group life and lines of business, which include individual disability and critical illness products. Colonial Life includes insurance for accident, sickness, and disability products, life products, and cancer and critical illness products to employees. The Company’s Closed Block segment consists of individual disability, group and individual long-term care, and other insurance products no longer actively marketed. Its Corporate segment includes investment income on corporate assets not specifically allocated to a line of business.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of UNM – 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 | |||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | 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 | 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 | |||
| 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 | 2.73 |
| MG Growth Estimate | 6.63% |
| MG Value | $59.44 |
| Opinion | Undervalued |
| MG Value based on 3% Growth | $39.59 |
| MG Value based on 0% Growth | $23.21 |
| Market Implied Growth Rate | 2.29% |
| Current Price | $35.71 |
| % of Intrinsic Value | 60.08% |
Unum Group qualifies for both the Defensive Investor and the Enterprising Investor, as the company passes all of the requirements of both investor types.  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 $1.89 in 2011 to an estimated $2.73 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.29% 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 Unum Group (UNM)?  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
| PEmg | 13.08 |
| PB Ratio | 1.04 |
| Dividend Yield | 1.85% |
| Number of Consecutive Years of Dividend Growth | 7 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Long-Term Debt | $2,580,800,000 |
| Total Assets | $61,706,800,000 |
| Intangible Assets | $198,800,000 |
| Total Liabilities | $53,191,100,000 |
| Shares Outstanding (Diluted Average) | 249,192,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $3.51 |
| Dec14 | $1.61 |
| Dec13 | $3.23 |
| Dec12 | $3.17 |
| Dec11 | $0.94 |
| Dec10 | $2.71 |
| Dec09 | $2.57 |
| Dec08 | $1.62 |
| Dec07 | $1.91 |
| Dec06 | $1.23 |
| Dec05 | $1.64 |
| Dec04 | -$0.86 |
| Dec03 | -$1.31 |
| Dec02 | $1.66 |
| Dec01 | $2.24 |
| Dec00 | $2.24 |
| Dec99 | -$0.77 |
| Dec98 | $2.54 |
| Dec97 | $2.57 |
| Dec96 | $1.61 |
| Dec95 | $1.92 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.73 |
| Dec14 | $2.34 |
| Dec13 | $2.64 |
| Dec12 | $2.30 |
| Dec11 | $1.89 |
| Dec10 | $2.25 |
| Dec09 | $1.94 |
| Dec08 | $1.46 |
| Dec07 | $1.09 |
| Dec06 | $0.61 |
| Dec05 | $0.43 |
| Dec04 | $0.15 |
| Dec03 | $0.70 |
| Dec02 | $1.67 |
| Dec01 | $1.70 |
| Dec00 | $1.50 |
| Dec99 | $1.28 |
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.  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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