Here is a look at how Allstate Corp (ALL) 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 = 4/6
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- 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 - FAIL
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- 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
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
Valuation Summary (Explanation of the ModernGraham Valuation Model)
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$47.51|
|Value Based on 0% Growth||$27.85|
|Market Implied Growth Rate||3.89%|
Balance Sheet - 9/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
Allstate Corp had a negative year in 2008, but that was now long enough ago that the Enterprising Investor will overlook it. The Defensive Investor, however, looks at a longer period and requires positive earnings for at least ten straight years; consequently the company is suitable for the Enterprising Investor but not the Defensive Investor. Enterprising Investors should feel comfortable proceeding with further research, beginning with a review of ModernGraham's Valuation of Travelers Companies.
From a valuation perspective, the company has not seen significant growth in EPSmg (normalized earnings) when looking at the full six year history, but it has seen some growth in the last few years that may support the market's current implied growth estimate of 3.89%. As a result, the company would appear to be fairly valued.
What do you think? Do you agree that Allstate Corp is fairly valued? What would be your assessment? Is the company suitable only for Enterprising Investors?
Disclosure: The author did not hold a position in Allstate Corp (ALL) at the time of publication and had no intention of changing that position within the next 72 hours.