Lincoln National Corp Valuation – January 2019 $LNC

Company Profile (excerpt from Reuters): Lincoln National Corporation, incorporated on January 5, 1968, is a holding company, which operates insurance and retirement businesses through its subsidiary companies. The Company operates in four segments: Annuities, Retirement Plan Services, Life Insurance and Group Protection. Through its segments, the Company sells a range of wealth protection, accumulation and retirement income products and solutions. These products include fixed and indexed annuities, variable annuities, universal life insurance (UL), variable universal life insurance (VUL), linked-benefit UL, term life insurance, indexed universal life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.


Downloadable PDF version of this valuation:

ModernGraham Valuation of LNC – January 2019

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 $10,979,281,905 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 1825.44% Pass
5. Moderate PEmg Ratio PEmg < 20 7.33 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.75 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 $7.01
MG Growth Estimate 9.73%
MG Value $195.99
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $101.65
MG Value based on 0% Growth $59.59
Market Implied Growth Rate -0.58%
Current Price $51.40
% of Intrinsic Value 26.23%

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 $7.01 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.58% annual earnings loss 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 $117.31. The company pays a dividend of $0.87 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 7.33, which was below the industry average of 30.63, 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 $117.31
PEmg 7.33
PB Ratio 0.75
Dividend Yield 1.69%
TTM Dividend $0.87
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $5,804,000,000
Total Assets $303,850,000,000
Intangible Assets $1,757,000,000
Total Liabilities $288,780,000,000
Shares Outstanding (Diluted Average) 218,469,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.70
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 $7.01
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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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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