Insurance Stocks

Lincoln National Corp Valuation – February 2018 $LNC

Company Profile (obtained from Marketwatch): Lincoln National Corp. is a holding company, which operates multiple insurance and retirement businesses through its subsidiary companies. It provides advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. The company operates through the following segments: Annuities, Retirement Plan Services, Life Insurance, Group Protection, and Other Operations. The Annuities segment provides tax-deferred investment growth and lifetime income opportunities for its clients by offering fixed and variable annuities. The Retirement Plan Services segment includes employers with retirement plan products and services, primarily in the defined contribution retirement plan marketplaces. The Life Insurance segment focuses on the creation and protection of wealth for its clients by providing life insurance products, including term insurance, both single and survivorship versions of universal life insurance, variable universal life insurance and indexed universal life insurance products. The Group Protection segment offers group non-medical insurance products, which includes term life, disability, dental, vision and accident and critical illness benefits and services to the employer marketplace through various forms of employee-paid and employer-paid plans. The Other Operations segment includes the financial data for operations. Lincoln National was founded in 1968 and is headquartered in Radnor, PA.

LNC Chart

LNC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – February 2018

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 $16,668,239,187 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 1878.07% Pass
5. Moderate PEmg Ratio PEmg < 20 10.56 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.98 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 $7.21
MG Growth Estimate 10.43%
MG Value $211.75
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $104.55
MG Value based on 0% Growth $61.29
Market Implied Growth Rate 1.03%
Current Price $76.17
% of Intrinsic Value 35.97%

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 $4.25 in 2014 to an estimated $7.21 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.03% 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 Lincoln National Corporation revealed the company was trading below its Graham Number of $121.79. The company pays a dividend of $0.87 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 10.56, which was below the industry average of 20.16, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Lincoln National Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $121.79
PEmg 10.56
PB Ratio 0.98
Dividend Yield 1.14%
TTM Dividend $0.87
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $4,894,000,000
Total Assets $281,763,000,000
Intangible Assets $9,771,000,000
Total Liabilities $264,441,000,000
Shares Outstanding (Diluted Average) 222,745,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.30
Dec2017 $9.22
Dec2016 $5.03
Dec2015 $4.51
Dec2014 $5.67
Dec2013 $4.52
Dec2012 $4.56
Dec2011 $0.69
Dec2010 $2.30
Dec2009 -$1.85
Dec2008 $0.22
Dec2007 $4.43
Dec2006 $5.13
Dec2005 $4.72
Dec2004 $3.95
Dec2003 $2.85
Dec2002 $0.26
Dec2001 $2.85
Dec2000 $3.03
Dec1999 $2.30
Dec1998 $2.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.21
Dec2017 $6.37
Dec2016 $4.92
Dec2015 $4.57
Dec2014 $4.25
Dec2013 $3.04
Dec2012 $1.93
Dec2011 $0.80
Dec2010 $1.25
Dec2009 $1.33
Dec2008 $3.17
Dec2007 $4.51
Dec2006 $4.16
Dec2005 $3.42
Dec2004 $2.71
Dec2003 $2.15
Dec2002 $1.93

Recommended Reading:

Other ModernGraham posts about the company

Stocks Trading Below Their Graham Number – March 2016
10 Most Undervalued Companies for the Enterprising Investor – February 2016
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 – February 2016

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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.

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