Company Profile (excerpt from Reuters): Torchmark Corporation (Torchmark), incorporated on November 29, 1979, is an insurance holding company. The Company, through its subsidiaries, provides a range of life and health insurance products and annuities to a base of customers. The Company’s segments include life insurance, health insurance, annuities and investment. The life insurance segment includes traditional and interest-sensitive whole life insurance as well as term life insurance. The Health insurance products are guaranteed-renewable and include Medicare Supplement, critical illness, accident and limited-benefit supplemental hospital and surgical coverage’s. Annuities include fixed-benefit contracts. The Company markets its insurance products through various distribution channels, each of which sells the products of its insurance segments. Its primary subsidiaries include American Income Life Insurance Company (American Income), Liberty National Life Insurance Company (Liberty National), Globe Life And Accident Insurance Company (Globe), United American Insurance Company (United American) and Family Heritage Life Insurance Company of America (Family Heritage).
Downloadable PDF version of this valuation:
ModernGraham Valuation of TMK – 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 | $8,908,878,115 | 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 | 166.74% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 11.33 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.69 | 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 | $7.13 |
| MG Growth Estimate | 12.30% |
| MG Value | $235.86 |
| Opinion | Undervalued |
| MG Grade | A- |
| MG Value based on 3% Growth | $103.35 |
| MG Value based on 0% Growth | $60.58 |
| Market Implied Growth Rate | 1.42% |
| Current Price | $80.76 |
| % of Intrinsic Value | 34.24% |
Torchmark Corporation qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value 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 $3.92 in 2015 to an estimated $7.13 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.42% 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 above the price.
At the time of valuation, further research into Torchmark Corporation revealed the company was trading below its Graham Number of $84.59. The company pays a dividend of $0.64 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 11.33, 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.
Torchmark Corporation fares extremely well in the ModernGraham grading system, scoring an A-.
Stage 3: Information for Further Research
| Graham Number | $84.59 |
| PEmg | 11.33 |
| PB Ratio | 1.69 |
| Dividend Yield | 0.79% |
| TTM Dividend | $0.64 |
| Number of Consecutive Years of Dividend Growth | 13 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Long-Term Debt & Capital Lease Obligation | $1,357,185,000 |
| Total Assets | $23,095,722,000 |
| Intangible Assets | $441,591,000 |
| Total Liabilities | $17,680,545,000 |
| Shares Outstanding (Diluted Average) | 113,642,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $6.55 |
| Dec2018 | $6.09 |
| Dec2017 | $12.22 |
| Dec2016 | $4.49 |
| Dec2015 | $4.16 |
| Dec2014 | $4.09 |
| Dec2013 | $3.79 |
| Dec2012 | $3.60 |
| Dec2011 | $3.02 |
| Dec2010 | $2.70 |
| Dec2009 | $2.17 |
| Dec2008 | $2.27 |
| Dec2007 | $2.44 |
| Dec2006 | $2.28 |
| Dec2005 | $2.08 |
| Dec2004 | $1.86 |
| Dec2003 | $1.66 |
| Dec2002 | $1.41 |
| Dec2001 | $1.26 |
| Dec2000 | $1.25 |
| Dec1999 | $0.91 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $7.13 |
| Dec2018 | $7.01 |
| Dec2017 | $6.90 |
| Dec2016 | $4.17 |
| Dec2015 | $3.92 |
| Dec2014 | $3.68 |
| Dec2013 | $3.33 |
| Dec2012 | $2.99 |
| Dec2011 | $2.63 |
| Dec2010 | $2.41 |
| Dec2009 | $2.26 |
| Dec2008 | $2.27 |
| Dec2007 | $2.20 |
| Dec2006 | $2.00 |
| Dec2005 | $1.79 |
| Dec2004 | $1.60 |
| Dec2003 | $1.41 |
Recommended Reading:
Other ModernGraham posts about the company
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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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