Seeking Alpha
, Portfolio123 (1,582 clicks)
Long only, value, research analyst, dividend investing
Profile| Send Message|
( followers)  

Summary

  • Everest Re is a good combination of value and growth dividend stock.
  • The current price offers an opportunity to initiate or add to positions in RE shares.
  • Everest Re Price was ranked third among S&P MidCap 400 best dividend stocks according to O'Neil principles.

I find Everest Re Group Ltd. (NYSE:RE) stock to be a good combination of value and growth dividend stock. RE has compelling valuation metrics, strong earnings growth prospects, and a very low debt. Furthermore, it pays a rich dividend and has raised its dividend payment by an average of 19.8% a year during the last 10 years. In my previous article, I ranked the best mid-cap dividend stocks according to O'Neil principles, and I showed there that Everest Re came in the third place after Waddell & Reed Financial, Inc. (NYSE:WDR), I described the second rated company Packaging Corporation of America (NYSE:PKG) in my SA article from January 22.

The Company

Everest Re Group, Ltd., through its subsidiaries, underwrites reinsurance and insurance products in the U.S. and international markets. The company was founded in 1973 and is headquartered in Hamilton, Bermuda.

Valuation Metrics

The table below presents the valuation metrics of RE, the data were taken from Yahoo Finance and finviz.com.

RE's valuation metrics are extremely good; the company has a very low debt, and the enterprise value-to-revenue ratio is very low at 1.03. According to Yahoo Finance, RE's next financial year forward P/E is very low at 7.96 and the average annual earnings growth estimates for the next five years is high at 13.70%. These give an exceptionally low PEG ratio of 0.58. The PEG Ratio - price/earnings to growth ratio is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.

Latest Quarter Results

On February 05, Everest Re reported its fourth-quarter and full-year 2013 financial results, which beat EPS expectations by $1.31 (26.40%). The company reported fourth quarter 2013 net income available to common shareholders of $364.6 million, or $7.54 per diluted common share, compared to net income of $58.8 million, or $1.13 per diluted common share, for the fourth quarter of 2012.

In the report, Dominic J. Addesso, president and chief executive officer, said:

Everest has reached another milestone with record earnings of $1.3 billion and a 20% return on equity. This is certainly a reflection of the effort over the last several years to position the company for profitable growth. We continue to strategically maneuver through a challenging marketplace and are confident that the portfolio we put together post January renewals can produce another strong year in 2014.

Next Quarter Results

Everest Re will report its first-quarter 2014 financial results on April 21. RE is expected to post a profit of $4.56 a share, a 22.4% decline from the company's actual earnings for the same quarter a year ago. Since the company has shown earnings surprise in three of the last four quarters, I think that there is a reasonable chance that RE will beat analyst expectations also in the current quarter.

Dividend

Everest Re has been paying uninterrupted dividends since 1995. The forward annual dividend yield is at 1.99% and the payout ratio only 9%. The annual rate of dividend growth over the past three years was at 4.5%, over the past five years was at 2.7%, and over the past ten years was very high at 19.8%. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors, and RE's performance has been very good in this respect. Since the company generates lots of cash, has a very low debt and the payout ratio is extremely low, there is an excellent chance that the company will continue to raise its dividend payment.

RE's dividend is paid every quarter, as shown in the charts below.

(click to enlarge)

Competitors and Group Comparison

A comparison of key fundamental data between Everest Re and its main competitors is shown in the table below.

Source: Yahoo Finance

RE's valuation metrics are much better than those of its main competitors. RE has the strongest earnings growth prospects, and by far the lowest PEG ratio among the group.

Most of RE's growth rates and stock valuation parameters have been much better than its industry median, its sector median and the S&P 500 median, as shown in the tables below.

(click to enlarge)

(click to enlarge)

Source: Portfolio123

Technical Analysis

Personally I am using only fundamental analysis for my investment decisions. After many years of experience, and after having tried all kinds of decisions making including technical analysis, I have reached the conclusion that relying on fundamental information is giving me the highest return. Nevertheless, some investors are successfully using technical analysis to find the proper moment to start an investment (I am not talking about traders; my analysis is only for investors). The charts below give some technical analysis information.

(click to enlarge)

Chart: finviz.com

The RE stock price is 1.43% above its 20-day simple moving average, 3.03% above its 50-day simple moving average and 6.08% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

(click to enlarge)

Chart: TradeStation Group, Inc.

The weekly MACD histogram, a particularly valuable indicator by technicians, is negative at 0.50 and ascending which is a bullish signal (a rising MACD histogram and crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 56.79 which do not indicate oversold or overbought conditions.

Analyst Opinion

Analysts opinion is divided, among the eleven analysts covering the stock, one rates it as a buy, nine rate it as a hold and one analyst rates it as an underperform.

Discussion

Everest Re has defined its objectives as follows: maximize book value per common share over time, and achieve returns that provide a mid-teens compound annual growth rate in shareholder value. Let see if the company has been able to fulfill its objectives; tangible book value per share increased from $66.65 in 2004 to $146.57 in 2013, which represents a Compound Annual Growth Rate - CAGR of 9.2%, which is quite remarkable. The total shareholder return, which is calculated as growth in book value per share plus dividends, has achieved CAGR of 13% since 1995 as shown in the chart below. We can say that so far Everest Re has clearly been able to fulfill its objectives. In my opinion, the prudent behavior of management and its proven ability make a reasonable chance that the company will be able to keep this impressive pattern. Although RE stock has risen 37.3% since the beginning of 2013, it is still an excellent buy right now. This is compared to the 30.9% rise of the S&P 500 index and the 41.6% rise of the Nasdaq Composite Index during the same period.

(click to enlarge)

Source: Q4 2013 Investor Presentation

Risk

According to Everest Re, the company is exposed to unpredictable catastrophic events, including weather-related and other natural catastrophes, as well as acts of terrorism. Any material reduction in its operating results caused by the occurrence of one or more catastrophes could inhibit its ability to pay dividends or to meet its interest and principal payment obligations.

Conclusion

Everest Re Price has compelling valuation metrics, and it has a very low debt. The company has recorded very strong EPS growth, and it has strong earnings growth prospects, its PEG ratio is extremely low at 0.58, much lower than its competitors. The company has been able to fulfill its objectives of book value growth and of providing a mid-teens compound annual growth rate in shareholder value.

All these factors lead me to the conclusion that RE stock still has plenty of room to move up. Furthermore, the rich growing dividend represents a gratifying income.

Source: Everest Re: An Attractive Dividend Stock