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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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.

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
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


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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

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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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