Everest Re Group Ltd Valuation – February 2019 $RE

Company Profile (excerpt from Reuters): Everest Re Group, Ltd., incorporated on August 26, 1999, through its subsidiaries, is engaged in the underwriting of reinsurance and insurance in the United States, Bermuda and international markets. The Company operates in segments: U.S. Reinsurance, International, Bermuda and Insurance. The Company underwrites reinsurance both through brokers and directly with ceding companies. The Company underwrites insurance principally through general agent relationships, brokers and surplus lines brokers. The Company offers treaty and facultative reinsurance, and admitted and non-admitted insurance. Its products include the range of property and casualty reinsurance, and insurance coverage’s, including marine, aviation, surety, errors and omissions liability (E&O), directors’ and officers’ liability (D&O), medical malpractice, other specialty lines, accident and health (A&H) and workers’ compensation. The Company’s subsidiaries include Everest Reinsurance (Bermuda), Ltd. (Bermuda Re), Everest International Reinsurance, Ltd., Everest Reinsurance Company (Ireland) Limited (Ireland Re), Everest Reinsurance Company (Everest Re), Everest Insurance Company of Canada, Everest National Insurance Company, Everest Indemnity Insurance Company, Everest Security Insurance Company and Everest International Assurance, Ltd.


Downloadable PDF version of this valuation:

ModernGraham Valuation of RE – February 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 $9,035,643,647 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 62.33% Pass
5. Moderate PEmg Ratio PEmg < 20 17.24 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.08 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 Fail


Stage 2: Determination of Intrinsic Value

EPSmg $12.90
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $186.99
MG Value based on 0% Growth $109.62
Market Implied Growth Rate 4.37%
Current Price $222.29
% of Intrinsic Value N/A

Everest Re Group Ltd does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has concerns regarding the lack of earnings 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 $19.09 in 2014 to an estimated $12.9 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.37% 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 Everest Re Group Ltd revealed the company was trading above its Graham Number of $79.48. The company pays a dividend of $5.05 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.24, which was below the industry average of 32.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Everest Re Group Ltd scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $79.48
PEmg 17.24
PB Ratio 1.08
Dividend Yield 2.27%
TTM Dividend $5.05
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $236,634,000
Total Assets $24,410,857,000
Intangible Assets $0
Total Liabilities $16,081,844,000
Shares Outstanding (Diluted Average) 40,542,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.37
Dec2017 $11.36
Dec2016 $23.68
Dec2015 $22.10
Dec2014 $25.91
Dec2013 $25.44
Dec2012 $15.79
Dec2011 -$1.49
Dec2010 $10.70
Dec2009 $13.22
Dec2008 -$0.30
Dec2007 $13.19
Dec2006 $12.87
Dec2005 -$3.79
Dec2004 $8.71
Dec2003 $7.74
Dec2002 $4.52
Dec2001 $2.10
Dec2000 $4.02
Dec1999 $3.25
Dec1998 $3.26

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $12.90
Dec2017 $19.67
Dec2016 $23.41
Dec2015 $21.37
Dec2014 $19.09
Dec2013 $14.70
Dec2012 $8.75
Dec2011 $5.84
Dec2010 $9.65
Dec2009 $8.43
Dec2008 $6.07
Dec2007 $8.75
Dec2006 $6.35
Dec2005 $3.35
Dec2004 $6.42
Dec2003 $4.96
Dec2002 $3.52

Recommended Reading:

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Everest Re Group Ltd Valuation – Initial Coverage $RE

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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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