The stock of Employers Holdings (NYSE:EIG, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $41.5 per share and the market cap of $1.2 billion, Employers Holdings stock is estimated to be fairly valued. GF Value for Employers Holdings is shown in the chart below.
Because Employers Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Employers Holdings has a cash-to-debt ratio of 2.50, which which ranks in the middle range of the companies in Insurance industry. The overall financial strength of Employers Holdings is 6 out of 10, which indicates that the financial strength of Employers Holdings is fair. This is the debt and cash of Employers Holdings over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Employers Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $748 million and earnings of $6.01 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, GuruFocus ranks the profitability of Employers Holdings at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Employers Holdings over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Employers Holdings's 3-year average revenue growth rate is worse than 73% of the companies in Insurance industry. Employers Holdings's 3-year average EBITDA growth rate is 3.7%, which ranks in the middle range of the companies in Insurance industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Employers Holdings's return on invested capital is 4.79, and its cost of capital is 7.49. The historical ROIC vs WACC comparison of Employers Holdings is shown below:
To conclude, the stock of Employers Holdings (NYSE:EIG, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Insurance industry. To learn more about Employers Holdings stock, you can check out its 30-year Financials here.
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