Selective Insurance Group Valuation – Initial Coverage $SIGI
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 – December 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 Selective Insurance Group (SIGI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Selective Insurance Group, Inc. is a holding company with insurance subsidiaries. The Company operates its business through four segments: Standard Commercial Lines, Standard Personal Lines, E&S Lines and Investments. Its Standard Commercial Lines segment consists of insurance products and services provided in the standard marketplace to its commercial customers, including businesses and local government agencies. Its Standard Personal Lines segment consists of insurance products and services, including flood insurance coverage that it writes through the National Flood Insurance Program, provided to individuals acquiring coverage in the standard marketplace. Its excess and surplus (E&S) Lines segment consists of insurance products and services provided to customers who have not obtained coverage in the standard marketplace. Its investment segment invests insurance premiums, as well as amounts generated through its capital management strategies.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SIGI – January 2017
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 | $2,478,700,768 | 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 | 92.18% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 17.74 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.56 | 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 | $2.40 |
| MG Growth Estimate | 15.00% |
| MG Value | $92.22 |
| Opinion | Undervalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $34.73 |
| MG Value based on 0% Growth | $20.36 |
| Market Implied Growth Rate | 4.62% |
| Current Price | $42.50 |
| % of Intrinsic Value | 46.09% |
Selective Insurance Group qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value 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 $0.72 in 2012 to an estimated $2.4 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.62% 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.
At the time of valuation, further research into Selective Insurance Group revealed the company was trading above its Graham Number of $39.44. The company pays a dividend of $0.6 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 17.74, which was below the industry average of 18.78, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Selective Insurance Group receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Graham Number | $39.44 |
| PEmg | 17.74 |
| PB Ratio | 1.56 |
| Dividend Yield | 1.41% |
| TTM Dividend | $0.60 |
| Number of Consecutive Years of Dividend Growth | 3 |
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| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Long-Term Debt & Capital Lease Obligation | $378,551,000 |
| Total Assets | $7,363,233,000 |
| Intangible Assets | $7,849,000 |
| Total Liabilities | $5,788,329,000 |
| Shares Outstanding (Diluted Average) | 57,810,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.54 |
| Dec2015 | $2.85 |
| Dec2014 | $2.47 |
| Dec2013 | $1.87 |
| Dec2012 | $0.68 |
| Dec2011 | $0.40 |
| Dec2010 | $1.20 |
| Dec2009 | $0.68 |
| Dec2008 | $0.82 |
| Dec2007 | $2.59 |
| Dec2006 | $2.65 |
| Dec2005 | $2.35 |
| Dec2004 | $4.07 |
| Dec2003 | $2.20 |
| Dec2002 | $1.56 |
| Dec2001 | $0.49 |
| Dec2000 | $0.51 |
| Dec1999 | $0.94 |
| Dec1998 | $0.87 |
| Dec1997 | $1.14 |
| Dec1996 | $0.92 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.40 |
| Dec2015 | $2.10 |
| Dec2014 | $1.59 |
| Dec2013 | $1.09 |
| Dec2012 | $0.72 |
| Dec2011 | $0.87 |
| Dec2010 | $1.27 |
| Dec2009 | $1.47 |
| Dec2008 | $2.08 |
| Dec2007 | $2.73 |
| Dec2006 | $2.72 |
| Dec2005 | $2.55 |
| Dec2004 | $2.35 |
| Dec2003 | $1.38 |
| Dec2002 | $0.93 |
| Dec2001 | $0.68 |
| Dec2000 | $0.80 |
Recommended Reading:
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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.
