Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Stocks for Using A Benjamin Graham Value Investing Strategy – FebruaryÂ 2017.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Kemper Corp (KMPR)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Kemper Corporation is a diversified insurance holding company. The Company, through the subsidiaries, provides automobile, homeowners, life, health and other insurance products to individuals and businesses. The Company, through its subsidiaries, is engaged in the property and casualty insurance and life and health insurance businesses. The Company operates in two segments: Property & Casualty Insurance, and Life & Health Insurance. Its Property & Casualty Insurance segment’s products include personal automobile insurance, both standard and non-standard risks, homeowners insurance, other personal insurance and commercial automobile insurance. Its Property & Casualty Insurance segment distributes its products through independent agents and brokers. Its Life & Health Insurance segment’s products include individual life, accident, health and property insurance. Its Kemper Home Service companies focus on providing individual life and supplemental accident and health insurance products.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of KMPR – February 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||$2,375,362,264||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||-26.60%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||28.83||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.16||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||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$22.53|
|MG Value based on 0% Growth||$13.21|
|Market Implied Growth Rate||10.16%|
|% of Intrinsic Value||N/A|
Kemper Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.55 in 2013 to an estimated $1.55 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.16% 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 Kemper Corp revealed the company was trading above its Graham Number of $39.53. The company pays a dividend of $0.96 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 28.83, which was above the industry average of 18.78.
Kemper Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2016|
|Long-Term Debt & Capital Lease Obligation||$751,600,000|
|Shares Outstanding (Diluted Average)||51,203,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.80|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.55|
Other ModernGraham posts about the company
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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