Berkshire Hathaway Analysis – August 2015 Update $BRK/B

Berkshire Hathaway Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor. Both investor types are turned off by the lack of dividends. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should proceed only with a cautious and speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $4.15 in 2011 to an estimated $7.22 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.52% 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.

Read the full valuation on Guru Focus!


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. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Berkshire Hathaway Inc Valuation – April 2019 #BRK.B

Company Profile (excerpt from Reuters): Berkshire Hathaway Inc. (Berkshire), incorporated on June 16, 1998, is a holding company owning subsidiaries engaged in various business activities. The Company’s segments include Insurance, Burlington Northern Santa Fe, LLC (BNSF), Berkshire Hathaway Energy, Manufacturing, McLane Company, Service and retailing, and Finance and financial products. The Company conducts insurance businesses on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Berkshire also owns and operates a range of other businesses engaged in a range of activities. Its insurance and reinsurance business activities are conducted through various domestic and foreign-based insurance entities. Its insurance businesses provide insurance and reinsurance of property and casualty risks and also reinsure life, accident and health risks across the world.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BRK.B – April 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 $501,551,804,600 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 93.65% Pass
5. Moderate PEmg Ratio PEmg < 20 21.36 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.40 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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.36
MG Growth Estimate 2.43%
MG Value $125.05
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $135.79
MG Value based on 0% Growth $79.60
Market Implied Growth Rate 6.43%
Current Price $200.07
% of Intrinsic Value 159.99%

Berkshire Hathaway Inc. Class B does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of dividends. 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 growing its EPSmg (normalized earnings) from $8.06 in 2015 to an estimated $9.36 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.43% 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 Berkshire Hathaway Inc. Class B revealed the company was trading above its Graham Number of $178.09. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 21.36, which was above the industry average of 19.43.

Berkshire Hathaway Inc. Class B scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Graham Number $178.09
PEmg 21.36
PB Ratio 1.40
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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 $93,117,000,000
Total Assets $707,794,000,000
Intangible Assets $113,173,000,000
Total Liabilities $355,294,000,000
Shares Outstanding (Diluted Average) 2,462,433,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.00
Dec2018 $1.63
Dec2017 $18.22
Dec2016 $9.76
Dec2015 $9.77
Dec2014 $8.06
Dec2013 $7.90
Dec2012 $5.99
Dec2011 $4.14
Dec2010 $5.29
Dec2009 $3.46
Dec2008 $2.15
Dec2007 $5.70
Dec2006 $4.76
Dec2005 $3.69
Dec2004 $3.17
Dec2003 $3.54
Dec2002 $1.86
Dec2001 $0.35
Dec2000 $1.46
Dec1999 $0.68

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.36
Dec2018 $9.19
Dec2017 $12.23
Dec2016 $8.92
Dec2015 $8.06
Dec2014 $6.90
Dec2013 $5.99
Dec2012 $4.76
Dec2011 $4.15
Dec2010 $4.19
Dec2009 $3.75
Dec2008 $3.89
Dec2007 $4.57
Dec2006 $3.80
Dec2005 $3.06
Dec2004 $2.52
Dec2003 $1.99

Recommended Reading:

Other ModernGraham posts about the company

Berkshire Hathaway Inc Valuation – May 2018 $BRK-B
Berkshire Hathaway Inc Valuation – January 2017 $BRK.B
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
20 Companies in the Spotlight This Week – 8/16/14

Other ModernGraham posts about related companies

Prudential Financial Inc Valuation – April 2019 #PRU
Torchmark Corp Valuation – March 2019 #TMK
Assurant Inc Valuation – March 2019 #AIZ
Humana Inc Valuation – March 2019 #HUM
American International Group Inc Valuation – March 2019 #AIG
Chubb Ltd Valuation – March 2019 #CB
Loews Corporation Valuation – March 2019 #L
Anthem Inc Valuation – February 2019 $ANTM
Arthur J Gallagher & Co Valuation – February 2019 $AJG
Brighthouse Financial Inc Valuation – February 2019 $BHF

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.

Berkshire Hathaway Inc Valuation – May 2018 $BRK-B

Company Profile (excerpt from Reuters): Berkshire Hathaway Inc. (Berkshire), incorporated on June 16, 1998, is a holding company owning subsidiaries engaged in various business activities. The Company’s segments include Insurance, Burlington Northern Santa Fe, LLC (BNSF), Berkshire Hathaway Energy, Manufacturing, McLane Company, Service and retailing, and Finance and financial products. The Company conducts insurance businesses on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Berkshire also owns and operates a range of other businesses engaged in a range of activities. Its insurance and reinsurance business activities are conducted through various domestic and foreign-based insurance entities. Its insurance businesses provide insurance and reinsurance of property and casualty risks and also reinsure life, accident and health risks across the world.

BRK.B Chart

BRK.B data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BRK-B – May 2018

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 $482,461,654,899 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 182.31% Pass
5. Moderate PEmg Ratio PEmg < 20 17.08 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.39 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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $11.45
MG Growth Estimate 9.92%
MG Value $324.53
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $166.08
MG Value based on 0% Growth $97.36
Market Implied Growth Rate 4.29%
Current Price $195.64
% of Intrinsic Value 60.28%

Berkshire Hathaway Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history. The Enterprising Investor has concerns regarding the lack of dividends. 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 Undervalued after growing its EPSmg (normalized earnings) from $6.9 in 2014 to an estimated $11.45 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.29% 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 Berkshire Hathaway Inc. revealed the company was trading above its Graham Number of $163.44. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 17.08, which was below the industry average of 31.35, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Berkshire Hathaway Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $163.44
PEmg 17.08
PB Ratio 1.39
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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 12/1/2017
Long-Term Debt & Capital Lease Obligation $102,587,000,000
Total Assets $702,095,000,000
Intangible Assets $113,776,000,000
Total Liabilities $353,799,000,000
Shares Outstanding (Diluted Average) 2,467,269,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.41
Dec2017 $18.22
Dec2016 $9.76
Dec2015 $9.77
Dec2014 $8.06
Dec2013 $7.90
Dec2012 $5.99
Dec2011 $4.14
Dec2010 $5.29
Dec2009 $3.46
Dec2008 $2.15
Dec2007 $5.70
Dec2006 $4.76
Dec2005 $3.69
Dec2004 $3.17
Dec2003 $3.54
Dec2002 $1.86
Dec2001 $0.35
Dec2000 $1.46
Dec1999 $0.68
Dec1998 $1.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.45
Dec2017 $12.23
Dec2016 $8.92
Dec2015 $8.06
Dec2014 $6.90
Dec2013 $5.99
Dec2012 $4.76
Dec2011 $4.15
Dec2010 $4.19
Dec2009 $3.75
Dec2008 $3.89
Dec2007 $4.57
Dec2006 $3.80
Dec2005 $3.06
Dec2004 $2.52
Dec2003 $1.99
Dec2002 $1.20

Recommended Reading:

Other ModernGraham posts about the company

Berkshire Hathaway Inc Valuation – January 2017 $BRK.B
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
20 Companies in the Spotlight This Week – 8/16/14

Other ModernGraham posts about related companies

Arthur J Gallagher & Co Valuation – April 2018 $AJG
Allstate Corp Valuation – April 2018 $ALL
Hartford Financial Services Group Inc Valuation – April 2018 $HIG
Unum Group Valuation – April 2018 $UNM
Brighthouse Financial Inc Valuation – Initial Coverage $BHF
XL Group Ltd Valuation – April 2018 $XL
Aetna Inc Valuation – April 2018 $AET
Everest Re Group Ltd Valuation – Initial Coverage $RE
Cigna Corp Valuation – March 2018 $CI
Aspen Insurance Holdings Ltd Valuation – March 2018 $AHL

Disclaimer:

The author holds 1 share of BRK.B but did not hold a position in any other 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.

Berkshire Hathaway Inc Valuation – January 2017 $BRK.B

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Berkshire Hathaway Inc (BRK.B) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Berkshire Hathaway Inc. is a holding company owning subsidiaries engaged in various business activities. The Company conducts insurance businesses on both a primary basis and a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses. Its segments include GEICO, General Re Corporation (General Re), Berkshire Hathaway Reinsurance Group (BHRG), Berkshire Hathaway Primary Group, Burlington Northern Santa Fe, LLC (BNSF), Berkshire Hathaway Energy, Manufacturing, McLane Company, Service and retailing, and Finance and financial products. Its insurance and reinsurance business activities are conducted through various domestic and foreign-based insurance entities. Its insurance businesses provide insurance and reinsurance of property and casualty risks, and also reinsure life, accident and health risks across the world.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BRK.B – January 2017

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 $402,387,877,822 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 121.45% Pass
5. Moderate PEmg Ratio PEmg < 20 20.24 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.50 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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $8.07
MG Growth Estimate 10.44%
MG Value $237.19
Opinion Undervalued
MG Grade F
MG Value based on 3% Growth $117.08
MG Value based on 0% Growth $68.64
Market Implied Growth Rate 5.87%
Current Price $163.41
% of Intrinsic Value 68.89%

Berkshire Hathaway Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of dividends. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.76 in 2012 to an estimated $8.07 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.87% 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 Berkshire Hathaway Inc. revealed the company was trading above its Graham Number of $133.13. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.24, which was above the industry average of 18.78.

Berkshire Hathaway Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Graham Number $133.13
PEmg 20.24
PB Ratio 1.50
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

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 9/1/2016
Long-Term Debt & Capital Lease Obligation $101,798,000,000
Total Assets $604,038,000,000
Intangible Assets $114,426,000,000
Total Liabilities $334,774,000,000
Shares Outstanding (Diluted Average) 2,465,868,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.21
Dec2015 $9.77
Dec2014 $8.06
Dec2013 $7.90
Dec2012 $5.99
Dec2011 $4.14
Dec2010 $5.29
Dec2009 $3.46
Dec2008 $2.15
Dec2007 $5.70
Dec2006 $4.76
Dec2005 $3.69
Dec2004 $3.17
Dec2003 $3.54
Dec2002 $1.86
Dec2001 $0.35
Dec2000 $1.46
Dec1999 $0.68
Dec1998 $1.51
Dec1997 $1.03
Dec1996 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.07
Dec2015 $8.06
Dec2014 $6.90
Dec2013 $5.99
Dec2012 $4.76
Dec2011 $4.15
Dec2010 $4.19
Dec2009 $3.75
Dec2008 $3.89
Dec2007 $4.57
Dec2006 $3.80
Dec2005 $3.06
Dec2004 $2.52
Dec2003 $1.99
Dec2002 $1.20
Dec2001 $0.91
Dec2000 $1.20

Recommended Reading:

Other ModernGraham posts about the company

Berkshire Hathaway Analysis – August 2015 Update $BRK/B
20 Companies in the Spotlight This Week – 8/16/14

Other ModernGraham posts about related companies

Infinity Property and Casualty Corp Valuation – Initial Coverage $IPCC
Hartford Financial Services Group Inc Valuation – December 2016 $HIG
AFLAC Inc Valuation – December 2016 $AFL
Arthur J Gallagher & Co Valuation – December 2016 $AJG
Aspen Insurance Holdings Limited Valuation – December 2016 $AHL
MetLife Inc Valuation – December 2016 $MET
Travelers Companies Inc Valuation – November 2016 $TRV
Allstate Corp Valuation – November 2016 $ALL
Unum Group Valuation – August 2016 $UNM
Principal Financial Group Inc Valuation – August 2016 $PFG

Disclaimer:

The author held a long position in Berkshire Hathaway Inc but did not hold a position in any other 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.

Humana Inc. Valuation – October 2015 Update $HUM

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how Humana Inc. (HUM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Humana Inc. (Humana) is a health and well-being company. The Company operates in three segments: Retail, Employer Group and Healthcare Services. The Company’s medical and specialty insurance products allow members to access health care services through its network of health care providers. Its Retail Segment consists of products sold on a retail basis to individuals, including medical and supplemental benefit plans. Its Employer Group segment consists of products sold to employer groups, including medical and supplemental benefit plans, as well as health and wellness products. Its Healthcare Services segment consists of businesses, which offers services, including pharmacy solutions, provider services, home-based services, integrated behavioral health services, and predictive modeling and informatics services to other Humana businesses, as well as external health plan members, external health plans, and other employers or individuals.
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To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HUM – October 2015

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 $26,820,824,892 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 106.19% Pass
5. Moderate PEmg Ratio PEmg < 20 22.28 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.68 Fail
Score
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

HUM value Chart October 2015

EPSmg $8.04
MG Growth Estimate 3.23%
MG Value $120.30
Opinion Overvalued
MG Value based on 3% Growth $116.56
MG Value based on 0% Growth $68.33
Market Implied Growth Rate 6.89%
Current Price $179.11
% of Intrinsic Value 148.88%

Humana Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor has concerns regarding the short dividend history and the high PEmg and PB ratios while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $6.61 in 2011 to an estimated $8.04 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.89% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Humana Inc. (HUM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

HUM Charts October 2015

Graham Number $116.81
PEmg 22.28
PB Ratio 2.68
Dividend Yield 0.63%
Number of Consecutive Years of Dividend Growth 5

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $3,823,000,000
Total Assets $25,384,000,000
Intangible Assets $3,266,000,000
Total Liabilities $15,301,000,000
Shares Outstanding (Diluted Average) 151,148,000

Earnings Per Share History

Next Fiscal Year Estimate $8.91
Dec14 $7.36
Dec13 $7.73
Dec12 $7.47
Dec11 $8.46
Dec10 $6.47
Dec09 $6.15
Dec08 $3.83
Dec07 $4.91
Dec06 $2.90
Dec05 $1.87
Dec04 $1.72
Dec03 $1.38
Dec02 $0.83
Dec01 $0.70
Dec00 $0.54
Dec99 -$2.28
Dec98 $0.77
Dec97 $1.05
Dec96 $0.07
Dec95 $1.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.04
Dec14 $7.57
Dec13 $7.53
Dec12 $7.12
Dec11 $6.61
Dec10 $5.41
Dec09 $4.56
Dec08 $3.53
Dec07 $3.11
Dec06 $2.05
Dec05 $1.52
Dec04 $1.24
Dec03 $0.74
Dec02 $0.32
Dec01 $0.09
Dec00 -$0.13
Dec99 -$0.26

Recommended Reading:

Other ModernGraham posts about the company

Humana Inc. Analysis – July 2015 Update $HUM
Humana Inc. Quarterly Valuation – April 2015 $HUM
58 Companies in the Spotlight This Week – 1/31/15
Humana Inc. Quarterly Valuation – January 2015 $HUM
18 Companies in the Spotlight This Week – 10/25/14

Other ModernGraham posts about related companies

Torchmark Corporation Valuation – October 2015 Update $TMK
MetLife Inc. Valuation – October 2015 Update $MET
Aetna Inc. Valuation – October 2015 Update $AET
Cigna Corporation Analysis – October 2015 Update $CI
The Best Companies of the Insurance Industry – October 2015
Chubb Corporation Analysis – September 2015 Update $CB
Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B

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 review our detailed disclaimer.

Torchmark Corporation Valuation – October 2015 Update $TMK

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how Torchmark Corporation (TMK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Torchmark Corporation is an insurance holding company. The Company’s segments include life insurance, health insurance, Medicare Part D, annuities and investment. The life insurance segment offers whole-life insurance, term life insurance and other life insurance products. The health insurance segment offers supplemental limited-benefit health insurance products primarily for cancer and accident plans. It also provides coverage under the Government’s Medicare Part D plan. The Company offers single-premium and flexible-premium deferred annuity products. The Company also invests in bonds, preferred stock, common stocks, mortgage loans, real estate, policy loans and others. Its primary subsidiaries are American Income Life Insurance Company, Liberty National Life Insurance Company, Globe Life And Accident Insurance Company, United American Insurance Company and Family Heritage Life Insurance Company of America.
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Downloadable PDF version of this valuation:

ModernGraham Valuation of TMK – October 2015

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 $7,286,718,835 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 70.55% Pass
5. Moderate PEmg Ratio PEmg < 20 15.01 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.72 Pass
Score
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

TMK value Chart October 2015

EPSmg $3.88
MG Growth Estimate 7.17%
MG Value $88.64
Opinion Undervalued
MG Value based on 3% Growth $56.27
MG Value based on 0% Growth $32.99
Market Implied Growth Rate 3.25%
Current Price $58.24
% of Intrinsic Value 65.70%

 

Torchmark Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.63 in 2011 to an estimated $3.88 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.25% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Torchmark Corporation (TMK)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

TMK Charts October 2015

Graham Number $55.97
PEmg 15.01
PB Ratio 1.72
Dividend Yield 0.90%
Number of Consecutive Years of Dividend Growth 10

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $743,306,000
Total Assets $20,020,910,000
Intangible Assets $441,591,000
Total Liabilities $15,714,850,000
Shares Outstanding (Diluted Average) 127,440,000

Earnings Per Share History

Next Fiscal Year Estimate $4.08
Dec14 $4.09
Dec13 $3.79
Dec12 $3.61
Dec11 $3.02
Dec10 $2.70
Dec09 $2.17
Dec08 $2.27
Dec07 $2.44
Dec06 $2.28
Dec05 $2.08
Dec04 $1.86
Dec03 $1.66
Dec02 $1.41
Dec01 $1.26
Dec00 $1.25
Dec99 $0.91
Dec98 $0.77
Dec97 $1.08
Dec96 $0.97
Dec95 $0.44

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.89
Dec14 $3.68
Dec13 $3.33
Dec12 $2.99
Dec11 $2.63
Dec10 $2.41
Dec09 $2.26
Dec08 $2.27
Dec07 $2.20
Dec06 $2.00
Dec05 $1.79
Dec04 $1.60
Dec03 $1.41
Dec02 $1.23
Dec01 $1.11
Dec00 $1.02
Dec99 $0.88

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
Torchmark Corporation Analysis – July 2015 Update $TMK
The Best Companies of the Insurance Industry – June 2015
21 Companies in the Spotlight This Week – 5/9/15

Other ModernGraham posts about related companies

MetLife Inc. Valuation – October 2015 Update $MET
Aetna Inc. Valuation – October 2015 Update $AET
Cigna Corporation Analysis – October 2015 Update $CI
The Best Companies of the Insurance Industry – October 2015
Chubb Corporation Analysis – September 2015 Update $CB
Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
Progressive Corporation Analysis – August 2015 Update $PGR

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 review our detailed disclaimer.

MetLife Inc. Valuation – October 2015 Update $MET

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how MetLife Inc. (MET) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): MetLife, Inc. (MetLife) is a provider of life insurance, annuities, employee benefits and asset management. The Company’s segments include Retail; Group, Voluntary & Worksite Benefits, and Corporate Benefit Funding. Its three geographic segments are Latin America (collectively, the Americas); Asia, and Europe, the Middle East and Africa (EMEA). In addition, MetLife’s Corporate & Other includes MetLife Home Loans LLC (MLHL), the surviving, non-bank entity of the merger of MetLife Bank, National Association (MetLife Bank) with and into MLHL, and other business activities. Through its subsidiaries and affiliates, it operates in the United States, Japan, Latin America, Asia, Europe and the Middle East. The Company‘s businesses in the Americas offer a range of protection products and services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MET – October 2015

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 $53,138,347,992 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 -24.76% Fail
5. Moderate PEmg Ratio PEmg < 20 11.40 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.78 Pass
Score
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

MET value Chart October 2015

EPSmg $4.20
MG Growth Estimate 5.85%
MG Value $84.86
Opinion Undervalued
MG Value based on 3% Growth $60.91
MG Value based on 0% Growth $35.71
Market Implied Growth Rate 1.45%
Current Price $47.90
% of Intrinsic Value 56.45%

MetLife Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.02 in 2011 to an estimated $4.20 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.45% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on MetLife Inc. (MET)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MET Charts October 2015

Graham Number $82.93
PEmg 11.40
PB Ratio 0.78
Dividend Yield 2.97%
Number of Consecutive Years of Dividend Growth 3

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $19,963,000,000
Total Assets $898,409,000,000
Intangible Assets $9,644,000,000
Total Liabilities $829,032,000,000
Shares Outstanding (Diluted Average) 1,128,392,000

Earnings Per Share History

Next Fiscal Year Estimate $4.92
Dec14 $5.42
Dec13 $2.91
Dec12 $1.12
Dec11 $5.76
Dec10 $2.86
Dec09 -$2.89
Dec08 $4.14
Dec07 $5.48
Dec06 $7.99
Dec05 $6.16
Dec04 $3.65
Dec03 $2.94
Dec02 $2.20
Dec01 $0.62
Dec00 $1.49

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.20
Dec14 $3.77
Dec13 $2.61
Dec12 $2.37
Dec11 $3.02
Dec10 $2.27
Dec09 $2.71
Dec08 $5.50
Dec07 $5.87
Dec06 $5.57
Dec05 $3.95
Dec04 $2.62
Dec03 $1.89
Dec02 $1.20
Dec01 $0.60
Dec00 $0.50

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
5 Undervalued Companies for Value Investors with a High Beta – August 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
MetLife Inc. Analysis – July 2015 Update $MET
The Best Companies of the Insurance Industry – June 2015

Other ModernGraham posts about related companies

Aetna Inc. Valuation – October 2015 Update $AET
Cigna Corporation Analysis – October 2015 Update $CI
The Best Companies of the Insurance Industry – October 2015
Chubb Corporation Analysis – September 2015 Update $CB
Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
Progressive Corporation Analysis – August 2015 Update $PGR
Ace Limited Analysis – August 2015 Update $ACE

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.

Aetna Inc. Valuation – October 2015 Update $AET

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Aetna Inc. (AET) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Aetna Inc. is a diversified health care benefits company. The Company offers a range of traditional, voluntary and consumer-directed health insurance products and related services. The Company’s operations are conducted in three business segments: Health Care, Group Insurance and Large Case Pensions. The Company’s Health Care segment includes medical, pharmacy benefit management services, dental, behavioral health and vision plans. The Company’s Group Insurance segment’s products consist primarily of Life Insurance Products, Disability Insurance Products and Long-Term Care Insurance Products. The Company’s Large Case Pensions segment manages a variety of retirement products (including pension and annuity products) primarily for tax-qualified pension plans. The Company’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, Governmental units, Government-sponsored plans, labor groups and expatriates.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of AET – October 2015

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 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $39,084,494,879 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.82 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 96.02% Pass
6. Moderate PEmg Ratio PEmg < 20 18.62 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.54 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.82 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.78 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AET value Chart October 2015

EPSmg $5.97
MG Growth Estimate 7.21%
MG Value $136.87
Opinion Fairly Valued
MG Value based on 3% Growth $86.57
MG Value based on 0% Growth $50.75
Market Implied Growth Rate 5.06%
Current Price $111.15
% of Intrinsic Value 81.21%

Aetna Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the low current ratio.  The Enterprising Investor is satisfied because the company passes the more stringent Defensive Investor requirements.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.03 in 2011 to an estimated $5.97 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.06% 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 within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Aetna Inc. (AET)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AET Charts October 2015

Net Current Asset Value (NCAV) -$74.54
Graham Number $84.62
PEmg 18.62
Current Ratio 0.82
PB Ratio 2.54
Dividend Yield 0.85%
Number of Consecutive Years of Dividend Growth 5

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $12,982,100,000
Total Current Liabilities $15,801,500,000
Long-Term Debt $7,840,100,000
Total Assets $54,641,100,000
Intangible Assets $12,458,000,000
Total Liabilities $39,234,500,000
Shares Outstanding (Diluted Average) 352,200,000

Earnings Per Share History

Next Fiscal Year Estimate $7.20
Dec14 $5.68
Dec13 $5.33
Dec12 $4.81
Dec11 $5.22
Dec10 $4.18
Dec09 $2.84
Dec08 $2.83
Dec07 $3.47
Dec06 $2.99
Dec05 $2.60
Dec04 $3.58
Dec03 $1.48
Dec02 -$4.29
Dec01 -$0.49
Dec00 $0.23
Dec99 $1.18
Dec98 $1.35
Dec97 $1.40
Dec96 $1.54
Dec95 $0.55

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.97
Dec14 $5.25
Dec13 $4.85
Dec12 $4.40
Dec11 $4.03
Dec10 $3.38
Dec09 $2.97
Dec08 $3.05
Dec07 $3.05
Dec06 $2.32
Dec05 $1.51
Dec04 $0.68
Dec03 -$0.64
Dec02 -$1.27
Dec01 $0.41
Dec00 $0.95
Dec99 $1.27

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
Aetna Inc. Analysis – July 2015 Update $AET
Aetna Inc. Annual Valuation – 2015 $AET
Aetna Inc. Quarterly Valuation – January 2015 $AET

Other ModernGraham posts about related companies

Cigna Corporation Analysis – October 2015 Update $CI
The Best Companies of the Insurance Industry – October 2015
Chubb Corporation Analysis – September 2015 Update $CB
Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
Progressive Corporation Analysis – August 2015 Update $PGR
Ace Limited Analysis – August 2015 Update $ACE
Travelers Companies Analysis – August 2015 Update $TRV

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.

Cigna Corporation Analysis – October 2015 Update $CI

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how Cigna Corporation (CI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cigna Corporation (Cigna), together with its subsidiaries, is a health services company. The Company offers medical, dental, disability, life and accident insurance and related products and services. The Company operates in three segments: Global Health Care, Global Supplemental Benefits and Group Disability and Life. The Global Health Care segment aggregates the commercial and Government operating segments. The Global Supplemental Benefits segment offers supplemental health, life and accident insurance products. The Group Disability and Life segment provides group long-term and short-term disability insurance, group life insurance, accident and specialty insurance and related services. Cigna offers commercial health and dental insurance, Medicare and Medicaid products and health, life and accident insurance coverages to individuals. It offers personal accident insurance coverage, consisting of accidental death and dismemberment and travel accident insurance.
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To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CI – October 2015

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 $35,594,315,428 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 154.49% Pass
5. Moderate PEmg Ratio PEmg < 20 20.15 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.16 Fail
Score
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

CI value Chart October 2015

EPSmg $6.92
MG Growth Estimate 10.25%
MG Value $200.79
Opinion Undervalued
MG Value based on 3% Growth $100.41
MG Value based on 0% Growth $58.86
Market Implied Growth Rate 5.82%
Current Price $139.50
% of Intrinsic Value 69.48%

Cigna Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios while the Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $4.11 in 2011 to an estimated $6.92 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.82% 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 within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cigna Corporation (CI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CI Charts October 2015

Graham Number $90.20
PEmg 20.15
PB Ratio 3.16
Dividend Yield 0.03%
Number of Consecutive Years of Dividend Growth 0

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $5,046,000,000
Total Assets $57,132,000,000
Intangible Assets $6,041,000,000
Total Liabilities $45,842,000,000
Shares Outstanding (Diluted Average) 255,730,000

Earnings Per Share History

Next Fiscal Year Estimate $8.24
Dec14 $7.83
Dec13 $5.18
Dec12 $5.61
Dec11 $4.59
Dec10 $4.65
Dec09 $4.73
Dec08 $1.05
Dec07 $3.87
Dec06 $3.43
Dec05 $4.17
Dec04 $3.48
Dec03 $1.50
Dec02 -$1.06
Dec01 $2.08
Dec00 $1.95
Dec99 $3.00
Dec98 $2.02
Dec97 $1.63
Dec96 $1.54
Dec95 $0.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.92
Dec14 $6.04
Dec13 $5.08
Dec12 $4.72
Dec11 $4.11
Dec10 $3.77
Dec09 $3.37
Dec08 $2.86
Dec07 $3.60
Dec06 $3.08
Dec05 $2.62
Dec04 $1.75
Dec03 $1.09
Dec02 $1.12
Dec01 $2.19
Dec00 $2.17
Dec99 $2.09

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
5 Undervalued Companies with a Low Beta – August 2015
5 Undervalued Companies with a Low Beta – July 2015
The 9 Best Stocks For Value Investors This Week – 7/18/15
Cigna Corporation Analysis – July 2015 Update $CI

Other ModernGraham posts about related companies

The Best Companies of the Insurance Industry – October 2015
Chubb Corporation Analysis – September 2015 Update $CB
Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
Progressive Corporation Analysis – August 2015 Update $PGR
Ace Limited Analysis – August 2015 Update $ACE
Travelers Companies Analysis – August 2015 Update $TRV
Lincoln National Corporation Analysis – August 2015 Update $LNC

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 review our detailed disclaimer.

Chubb Corporation Analysis – September 2015 Update $CB

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.

We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.

In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

What follows is a specific look at how Chubb Corporation (CB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Chubb Corporation is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The property and casualty insurance subsidiaries (the P&C Group) underwrite insurance in the United States, Canada, Europe, Australia and parts of Latin America and Asia. The P&C Group operates through three business units: Chubb Personal Insurance, offers personal insurance products for homes and valuable articles (such as art and jewelry) for high net worth individuals; Chubb Commercial Insurance, offers multiple peril, primary liability, excess and umbrella liability, automobile, workers’ compensation and property and marine insurance, and Chubb Specialty Insurance, offers specialized professional liability products for privately held and publicly traded companies, financial institutions, professional firms, healthcare and not-for-profit organizations.
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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CB – September 2015

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 $27,236,530,860 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 39.36% Pass
5. Moderate PEmg Ratio PEmg < 20 15.76 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.76 Pass
Score
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

CB value Chart September 2015

EPSmg $7.68
MG Growth Estimate 3.95%
MG Value $125.96
Opinion Fairly Valued
MG Value based on 3% Growth $111.40
MG Value based on 0% Growth $65.30
Market Implied Growth Rate 3.63%
Current Price $121.11
% of Intrinsic Value 96.15%

Chubb Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $6.08 in 2011 to an estimated $7.68 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.63% 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 within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Chubb Corporation (CB)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CB Charts September 2015

Graham Number $107.33
PEmg 15.76
PB Ratio 1.76
Dividend Yield 1.77%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Long-Term Debt $3,300,000,000
Total Assets $50,726,000,000
Intangible Assets $467,000,000
Total Liabilities $34,808,000,000
Shares Outstanding (Diluted Average) 231,000,000

Earnings Per Share History

Next Fiscal Year Estimate $7.30
Dec14 $8.62
Dec13 $9.04
Dec12 $5.69
Dec11 $5.76
Dec10 $6.76
Dec09 $6.18
Dec08 $4.92
Dec07 $7.01
Dec06 $5.98
Dec05 $4.47
Dec04 $4.01
Dec03 $2.23
Dec02 $0.65
Dec01 $0.32
Dec00 $2.01
Dec99 $1.83
Dec98 $2.10
Dec97 $2.20
Dec96 $1.45
Dec95 $1.96

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.68
Dec14 $7.64
Dec13 $7.00
Dec12 $5.94
Dec11 $6.08
Dec10 $6.22
Dec09 $5.87
Dec08 $5.57
Dec07 $5.51
Dec06 $4.33
Dec05 $3.11
Dec04 $2.23
Dec03 $1.37
Dec02 $1.08
Dec01 $1.43
Dec00 $1.96
Dec99 $1.93

Recommended Reading:

Other ModernGraham posts about the company

The 10 Best Stocks For Value Investors This Week – 6/20/15
Chubb Corporation Analysis – June 2015 Update $CB
18 Companies in the Spotlight This Week – 3/21/15
Chubb Corporation Quarterly Valuation – March 2015 $CB
26 Companies in the Spotlight This Week – 12/13/14

Other ModernGraham posts about related companies

Anthem Inc. Analysis – September 2015 Update $ANTM
Aflac Inc. Analysis – September 2015 Update $AFL
Marsh & McLennan Companies Analysis – September 2015 Update $MMC
Berkshire Hathaway Analysis – August 2015 Update $BRK/B
Progressive Corporation Analysis – August 2015 Update $PGR
Ace Limited Analysis – August 2015 Update $ACE
Travelers Companies Analysis – August 2015 Update $TRV
Lincoln National Corporation Analysis – August 2015 Update $LNC
Unum Group Analysis – August 2015 Update $UNM
Principal Financial Group Analysis – August 2015 Update $PFG

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 review our detailed disclaimer.

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