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 – MarchÂ 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 Assurant Inc (AIZ)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Assurant, Inc. is a provider of risk management solutions in the housing and lifestyle markets. The Company operates in North America, Latin America, Europe and Asia. The Company’s segments include Global Housing, Global Lifestyle and Global Preneed. Through its Global Housing segment, it provides lender-placed homeowners, manufactured housing and flood insurance; renters insurance and related products (multi-family housing business), and field services, valuation services and other property risk management services (mortgage solutions business). Through its Global Lifestyle segment, it provides mobile device protection products and related services and extended service products and related services for consumer electronics and appliances (global connected living business); vehicle protection services, and credit insurance. The Global Preneed segment provides pre-funded funeral insurance and annuity products. Its Global Preneed Segment operates in the United States and Canada.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$5,490,446,365||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||74.22%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||16.14||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.50||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
|MG Growth Estimate||2.41%|
|MG Value based on 3% Growth||$89.03|
|MG Value based on 0% Growth||$52.19|
|Market Implied Growth Rate||3.82%|
|% of Intrinsic Value||121.14%|
Assurant, Inc. 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 Overvalued after growing its EPSmg (normalized earnings) from $5.29 in 2013 to an estimated $6.14 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.82% 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 Assurant, Inc. revealed the company was trading above its Graham Number of $98.92. The company pays a dividend of $2.03 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 16.15, 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.
Assurant, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||14|
|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||$1,067,020,000|
|Shares Outstanding (Diluted Average)||61,935,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$6.05|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$6.14|
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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.