Torchmark Corp Valuation – February 2016 $TMK
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 – February 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 Torchmark Corp (TMK) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Torchmark Corporation is an insurance holding company. The Company’s segments include life insurance, health insurance, Medicare Part D, annuities and investment. The life insurance segment offers whole-life insurance, term life insurance and other life insurance products. The health insurance segment offers supplemental limited-benefit health insurance products primarily for cancer and accident plans. It also provides coverage under the Government’s Medicare Part D plan. The Company offers single-premium and flexible-premium deferred annuity products. The Company also invests in bonds, preferred stock, common stocks, mortgage loans, real estate, policy loans and others. Its primary subsidiaries are American Income Life Insurance Company, Liberty National Life Insurance Company, Globe Life And Accident Insurance Company, United American Insurance Company and Family Heritage Life Insurance Company of America.
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Downloadable PDF version of this valuation:
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 | $6,442,773,026 | 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 | 71.84% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 13.39 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.54 | 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 | $3.91 |
| MG Growth Estimate | 7.34% |
| MG Value | $90.67 |
| Opinion | Undervalued |
| MG Value based on 3% Growth | $56.71 |
| MG Value based on 0% Growth | $33.24 |
| Market Implied Growth Rate | 2.45% |
| Current Price | $52.38 |
| % of Intrinsic Value | 57.77% |
Torchmark Corp qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.63 in 2011 to an estimated $3.91 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.45% 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.
Stage 3: Information for Further Research
| Graham Number | $56.79 |
| PEmg | 13.39 |
| PB Ratio | 1.54 |
| Dividend Yield | 1.02% |
| Number of Consecutive Years of Dividend Growth | 10 |
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| ModernGraham tagged articles | Morningstar |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | Sep2015 |
| Long-Term Debt | $743,518,000 |
| Total Assets | $20,119,240,000 |
| Intangible Assets | $441,591,000 |
| Total Liabilities | $15,835,938,000 |
| Shares Outstanding (Diluted Average) | 126,140,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $4.14 |
| Dec2014 | $4.09 |
| Dec2013 | $3.79 |
| Dec2012 | $3.61 |
| Dec2011 | $3.02 |
| Dec2010 | $2.70 |
| Dec2009 | $2.17 |
| Dec2008 | $2.27 |
| Dec2007 | $2.44 |
| Dec2006 | $2.28 |
| Dec2005 | $2.08 |
| Dec2004 | $1.86 |
| Dec2003 | $1.66 |
| Dec2002 | $1.41 |
| Dec2001 | $1.26 |
| Dec2000 | $1.25 |
| Dec1999 | $0.91 |
| Dec1998 | $0.77 |
| Dec1997 | $1.08 |
| Dec1996 | $0.97 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.91 |
| Dec2014 | $3.68 |
| Dec2013 | $3.33 |
| Dec2012 | $2.99 |
| Dec2011 | $2.63 |
| Dec2010 | $2.41 |
| Dec2009 | $2.26 |
| Dec2008 | $2.27 |
| Dec2007 | $2.20 |
| Dec2006 | $2.00 |
| Dec2005 | $1.79 |
| Dec2004 | $1.60 |
| Dec2003 | $1.41 |
| Dec2002 | $1.23 |
| Dec2001 | $1.11 |
| Dec2000 | $1.02 |
| Dec1999 | $0.85 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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.
