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 Stocks for Using A Benjamin Graham Value Investing Strategy – August 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 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 provides a portfolio of other insurance products, including employer and employee paid group benefits, life insurance and other related services. Its segments are Unum US, Unum UK, Colonial Life, Closed Block and Corporate. The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business. The Unum UK segment includes insurance for group long-term disability, group life, and supplemental lines of business, which include individual disability and critical illness products. The Colonial Life segment includes insurance for accident, sickness, and disability products, life products, and cancer and critical illness products. The Closed Block segment consists of individual disability, group and individual long-term care, and other insurance products.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of UNM – August 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 | $8,481,764,612 | 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 | 15.74% | Fail | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 13.98 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.92 | 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 | $2.55 |
| MG Growth Estimate | 1.61% |
| MG Value | $29.87 |
| Opinion | Overvalued |
| MG Grade | B |
| MG Value based on 3% Growth | $36.94 |
| MG Value based on 0% Growth | $21.65 |
| Market Implied Growth Rate | 2.74% |
| Current Price | $35.61 |
| % of Intrinsic Value | 119.22% |
Unum Group is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth 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 Overvalued after growing its EPSmg (normalized earnings) from $2.3 in 2012 to an estimated $2.55 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.74% 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 below the price.
At the time of valuation, further research into Unum Group revealed the company was trading below its Graham Number of $41.77. The company pays a dividend of $0.74 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.98, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Unum Group performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Graham Number | $41.77 |
| PEmg | 13.98 |
| PB Ratio | 0.92 |
| Dividend Yield | 2.08% |
| TTM Dividend | $0.74 |
| Number of Consecutive Years of Dividend Growth | 8 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2016 |
| Current Portion of Long-Term Debt | $350,700,000 |
| Total Assets | $63,853,100,000 |
| Intangible Assets | $226,700,000 |
| Total Liabilities | $54,696,100,000 |
| Shares Outstanding (Diluted Average) | 237,319,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $1.99 |
| Dec2015 | $3.50 |
| Dec2014 | $1.57 |
| Dec2013 | $3.19 |
| Dec2012 | $3.17 |
| Dec2011 | $0.94 |
| Dec2010 | $2.71 |
| Dec2009 | $2.57 |
| Dec2008 | $1.62 |
| Dec2007 | $1.91 |
| Dec2006 | $1.23 |
| Dec2005 | $1.64 |
| Dec2004 | -$0.86 |
| Dec2003 | -$1.31 |
| Dec2002 | $1.66 |
| Dec2001 | $2.21 |
| Dec2000 | $2.22 |
| Dec1999 | -$0.77 |
| Dec1998 | $2.54 |
| Dec1997 | $2.57 |
| Dec1996 | $1.61 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $2.55 |
| Dec2015 | $2.71 |
| Dec2014 | $2.31 |
| Dec2013 | $2.63 |
| Dec2012 | $2.30 |
| Dec2011 | $1.89 |
| Dec2010 | $2.25 |
| Dec2009 | $1.94 |
| Dec2008 | $1.46 |
| Dec2007 | $1.09 |
| Dec2006 | $0.61 |
| Dec2005 | $0.43 |
| Dec2004 | $0.14 |
| Dec2003 | $0.69 |
| Dec2002 | $1.65 |
| Dec2001 | $1.68 |
| Dec2000 | $1.49 |
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.
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