Insurance Stocks

Chubb Ltd Valuation – March 2019 #CB

Company Profile (excerpt from Reuters): Chubb Limited, incorporated on July 18, 2008, is a holding company. The Company, through its subsidiaries, provides a range of insurance and reinsurance products and services to clients around the world. Its segments include North America Commercial property and casualty (P&C) Insurance, North America Personal P&C Insurance, North America Agricultural Insurance, Overseas General Insurance, Global Reinsurance and Life Insurance. It offers commercial insurance products and service offerings, such as risk management programs, loss control, and engineering and complex claims management. It provides specialized insurance products to areas, such as aviation and energy. It also offers personal lines insurance coverage, including homeowners, automobile, valuables, umbrella liability and recreational marine products. In addition, it supplies personal accident, supplemental health and life insurance to individuals in select countries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CB – March 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 $62,335,221,108 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 25.14% Fail
5. Moderate PEmg Ratio PEmg < 20 14.98 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.25 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 $9.08
MG Growth Estimate 0.73%
MG Value $90.36
Opinion Overvalued
MG Grade B
MG Value based on 3% Growth $131.60
MG Value based on 0% Growth $77.15
Market Implied Growth Rate 3.24%
Current Price $135.96
% of Intrinsic Value 150.47%

Chubb Ltd is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth 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 Overvalued after growing its EPSmg (normalized earnings) from $8.66 in 2015 to an estimated $9.08 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.24% 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 Chubb Ltd revealed the company was trading below its Graham Number of $158.96. The company pays a dividend of $2.9 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.98, which was below the industry average of 26.11, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Chubb Ltd performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $158.96
PEmg 14.98
PB Ratio 1.25
Dividend Yield 2.13%
TTM Dividend $2.90
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $12,395,000,000
Total Assets $167,771,000,000
Intangible Assets $21,709,000,000
Total Liabilities $117,459,000,000
Shares Outstanding (Diluted Average) 463,196,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.25
Dec2018 $8.49
Dec2017 $8.19
Dec2016 $8.87
Dec2015 $8.62
Dec2014 $8.42
Dec2013 $10.92
Dec2012 $7.89
Dec2011 $4.52
Dec2010 $9.11
Dec2009 $7.55
Dec2008 $3.50
Dec2007 $7.66
Dec2006 $6.91
Dec2005 $3.31
Dec2004 $3.88
Dec2003 $5.25
Dec2002 $0.27
Dec2001 -$0.78
Dec2000 $2.31
Dec1999 $1.85

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.08
Dec2018 $8.50
Dec2017 $8.67
Dec2016 $8.92
Dec2015 $8.66
Dec2014 $8.51
Dec2013 $8.37
Dec2012 $6.90
Dec2011 $6.42
Dec2010 $7.23
Dec2009 $6.12
Dec2008 $5.29
Dec2007 $5.93
Dec2006 $4.68
Dec2005 $3.17
Dec2004 $2.80
Dec2003 $2.10

Recommended Reading:

Other ModernGraham posts about the company

Chubb Ltd Valuation – June 2018 $CB
Chubb Ltd Valuation – March 2017 $CB
21 Best Undervalued Stocks of the Week – 8/27/16
Chubb Limited Valuation – August 2016 $CB
Chubb Ltd Stock Valuation – February 2016 $CB

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Disclaimer:

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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