Selective Insurance Group Inc Valuation – July 2018 $SIGI

Company Profile (excerpt from Reuters): Selective Insurance Group, Inc., incorporated in August 1977, is a holding company. As of December 31, 2016, the Company had 10 insurance subsidiaries, nine of which were licensed by various state departments of insurance to write specific lines of property and casualty insurance business in the standard market. The remaining subsidiary is authorized by various state insurance departments to write property and casualty insurance in the excess and surplus lines (E&S) market. 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, non-profit organizations, 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 (NFIP), provided primarily to individuals acquiring coverage in the standard marketplace. Its E&S Lines segment consists of insurance products and services provided to customers who have not obtained coverage in the standard marketplace. The investment segment invests insurance premiums, as well as amounts generated through its capital management strategies, which includes the issuance of debt and equity securities.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SIGI – July 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 $3,341,689,935 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 280.26% Pass
5. Moderate PEmg Ratio PEmg < 20 20.31 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.10 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 $2.89
MG Growth Estimate 12.20%
MG Value $94.91
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $41.84
MG Value based on 0% Growth $24.53
Market Implied Growth Rate 5.90%
Current Price $58.60
% of Intrinsic Value 61.74%

Selective Insurance Group is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg ratio. 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 $1.59 in 2014 to an estimated $2.89 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.9% 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 $45.41. The company pays a dividend of $0.66 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 20.31, which was below the industry average of 34.9, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Selective Insurance Group performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $45.41
PEmg 20.31
PB Ratio 2.10
Dividend Yield 1.13%
TTM Dividend $0.66
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $439,224,000
Total Assets $7,659,949,000
Intangible Assets $7,849,000
Total Liabilities $6,000,153,000
Shares Outstanding (Diluted Average) 59,563,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.13
Dec2017 $2.84
Dec2016 $2.70
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.89
Dec2017 $2.69
Dec2016 $2.45
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

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Investor – February 2017
10 Undervalued Companies for the Defensive Investor – January 2017
15 Best Stocks for Value Investors This Week – 1/14/17
Selective Insurance Group Valuation – Initial Coverage $SIGI

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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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