Company Profile (excerpt from Reuters): Stewart Information Services Corporation, incorporated March 25, 1970, is a global real estate services company. The Company is engaged in offering products and services through its direct operations, network of Stewart Trusted Providers and family of companies. The Company operates through two segments: title insurance and ancillary services (title) and corporate. The Company operates through a network of production facilities, owned policy-issuing offices and independent agencies in the United States and international markets. The Company provides its services to homebuyers and sellers; residential and commercial real estate professionals; mortgage lenders and servicers; title agencies and real estate attorneys; home builders, and the United States Government. It also provides services to mortgage lenders and servicers, mortgage brokers and mortgage investors, which are primarily related to appraisal and valuation services (referred to as ancillary services operations). Its primary international operations are located in Canada, the United Kingdom, Australia and Central Europe.
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||$1,074,196,017||Fail|
|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||-284.27%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||26.09||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.60||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||Fail|
|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||-1.99%|
|MG Value based on 3% Growth||$25.14|
|MG Value based on 0% Growth||$14.74|
|Market Implied Growth Rate||8.79%|
|% of Intrinsic Value||576.27%|
Stewart Information Services Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 stability or 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 in 2014 to an estimated $1.73 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.79% 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 Stewart Information Services Corp revealed the company was trading above its Graham Number of $38.3. The company pays a dividend of $1.2 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.09, which was below the industry average of 36.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Stewart Information Services Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||3|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||6/1/2018|
|Long-Term Debt & Capital Lease Obligation||$107,657,000|
|Shares Outstanding (Diluted Average)||23,625,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.30|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.73|
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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.