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Here is a look at how Chubb Corporation (NYSE:CB) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass all 6 of the following tests: Score = 6/6

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  3. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  4. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  5. Moderate PEmg ratio - PEmg is less than 20 - PASS
  6. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability - positive earnings per share for at least 5 years - PASS
  2. Dividend Record - currently pays a dividend - PASS
  3. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value$93
MG OpinionFairly Valued
Value Based on 3% Growth$99
Value Based on 0% Growth$58
Market Implied Growth Rate2.81%
PEmg14.12
PB Ratio1.56

Balance Sheet - 9/30/2013

Total Debt$3,300,000,000
Total Assets$51,067,000,000
Intangible Assets$467,000,000
Total Liabilities$35,446,000,000
Outstanding Shares251,760,000

Earnings Per Share - Diluted

2013 (estimate)$8.63
2012$5.69
2011$5.76
2010$6.76
2009$6.18
2008$4.92
2007$7.01
2006$5.98
2005$4.47
2004$4.01
2003$2.23
2002$0.80

Earnings Per Share - Modern Graham (Calculating EPSmg)

2013 (estimate)$6.86
2012$5.94
2011$6.08
2010$6.22
2009$5.87
2008$5.57

Conclusion:

Chubb Corp is a very attractive company, having passed all of the requirements for both Defensive Investors and Enterprising Investors (note because Chubb is an insurance/financial company, the tests have been slightly modified). The company has very strong financials, dividend history, and stable earnings. From a valuation perspective, the company has achieved a moderate level of growth, having grown EPSmg (normalized earnings) from $5.57 in 2008 to an estimated $6.86 for 2013. This moderate growth is in line with the market's implied estimate of 2.81% and the company therefore would seem to be fairly valued at this time. Investors seeking to add Chubb to their portfolio should proceed with further research to determine whether it is suitable for their individual portfolio, while keeping in mind the 7 Key Tips to Value Investing.

Disclaimer: The author did not hold a position in Chubb Corp. at the time of publication and had no intention of entering into a position in the next 72 hours.

Source: ModernGraham Valuation Of Chubb Corp.