Company Profile (excerpt from Reuters): CorVel Corporation (Corvel), incorporated on May 16, 1991, is a provider of workers’ compensation solutions for employers, third party administrators, insurance companies and government agencies. The Company offers its services as a bundled solution, which includes claims management, as a standalone service, or as add-on services to existing customers. CareMC is an application platform for all of the Company’s primary service lines and delivers immediate access to customers. CareMC offers customers direct access to the Company’s primary services. CareMC allows for electronic communication and reporting between providers, payers, employers and patients. The Company offers services in two general categories, network solutions and patient management.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$1,177,565,744||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.75||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||69.01%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||34.11||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||6.29||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.75||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||4.59%|
|MG Value based on 3% Growth||$25.46|
|MG Value based on 0% Growth||$14.93|
|Market Implied Growth Rate||12.81%|
|% of Intrinsic Value||192.87%|
CorVel Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. 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 Overvalued after growing its EPSmg (normalized earnings) from $1.34 in 2015 to an estimated $1.76 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.81% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into CorVel Corporation revealed the company was trading above its Graham Number of $20.28. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 34.11, which was above the industry average of 21.12. Finally, the company was trading above its Net Current Asset Value (NCAV) of $3.86.
CorVel Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$3.86|
|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||6/1/2018|
|Total Current Assets||$183,156,000|
|Total Current Liabilities||$104,801,000|
|Shares Outstanding (Diluted Average)||19,102,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.02|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.76|
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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.