Lincoln National Corporation Valuation – May 2016 $LNC

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 – March 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 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 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. It operates through four segments: Annuities segment, which offers fixed (including indexed) and variable annuities; Retirement Plan Services segment, which provides employers with retirement plan products and services; Life Insurance segment, which focuses in the creation and protection of wealth through life insurance products, and Group Protection, which offers principally group non-medical insurance products. 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.


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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. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – May 2016

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 $10,807,010,723 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 468.93% Pass
5. Moderate PEmg Ratio PEmg < 20 8.73 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 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

LNC value chart May 2016

EPSmg $5.16
MG Growth Estimate 15.00%
MG Value $198.66
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $74.82
MG Value based on 0% Growth $43.86
Market Implied Growth Rate 0.12%
Current Price $45.07
% of Intrinsic Value 22.69%

Lincoln National Corporation is suitable 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. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.12% 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.

Lincoln National Corporation fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

LNC charts May 2016

Graham Number $89.07
PEmg 8.73
PB Ratio 0.75
Current Dividend $1.10
Dividend Yield 2.44%
Number of Consecutive Years of Dividend Growth 7


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-term Debt $5,650,000,000
Total Assets $255,718,000,000
Intangible Assets $11,257,000,000
Total Liabilities $241,060,000,000
Shares Outstanding (Diluted Average) 245,100,000

Earnings Per Share History

Next Fiscal Year Estimate $5.75
12/1/2015 $4.51
12/1/2014 $5.67
12/1/2013 $4.52
12/1/2012 $4.56
12/1/2011 $0.92
12/1/2010 $2.54
12/1/2009 -$1.85
12/1/2008 $0.22
12/1/2007 $4.43
12/1/2006 $5.13
12/1/2005 $4.72
12/1/2004 $3.95
12/1/2003 $2.85
12/1/2002 $0.49
12/1/2001 $3.05
12/1/2000 $3.19
12/1/1999 $2.30
12/1/1998 $2.51
12/1/1997 $4.49
12/1/1996 $2.46

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.16
12/1/2015 $4.59
12/1/2014 $4.30
12/1/2013 $3.12
12/1/2012 $2.04
12/1/2011 $0.94
12/1/2010 $1.33
12/1/2009 $1.33
12/1/2008 $3.17
12/1/2007 $4.51
12/1/2006 $4.17
12/1/2005 $3.47
12/1/2004 $2.79
12/1/2003 $2.27
12/1/2002 $2.09
12/1/2001 $2.96
12/1/2000 $2.94

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – May 2016
10 Companies Benjamin Graham Would Invest In Today – March 2016
Stocks Trading Below Their Graham Number – March 2016
Stocks Trading Below Their Graham Number – February 2016
10 Most Undervalued Companies for the Enterprising Investor – February 2016

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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.  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.

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