Globe Life (NYSE: GL) has been a gradual performer within the insurance coverage trade for many years, however latest occasions have put this stalwart below the microscope.
A fast look on the inventory’s value chart ought to offer you an concept of what I imply. Following a disparaging report in opposition to the corporate’s gross sales practices earlier this 12 months, shares tumbled sharply, and they’re nonetheless within the technique of rebounding from their multi-year lows.
However regardless of the unfavorable press, I feel the inventory deserves a critical look. Let’s run it by way of The Worth Meter.
First, let’s have a look at Globe Life’s enterprise value-to-net asset worth (EV/NAV) ratio, which provides us a way of how the market is valuing the corporate’s belongings relative to its friends’. Globe Life’s EV/NAV sits at 2.04, a big low cost to the market common of 6.56 for corporations with optimistic web belongings.
That’s not a foul low cost. However is it really a cut price?
The corporate’s capacity to generate money is essential to answering that query, and Globe Life reveals some power in that regard.
Over the previous 4 quarters, Globe Life’s free money movement averaged 7.45% of its web belongings. Whereas that is barely beneath the peer common of 8.04%, it’s not far off. Extra importantly, the corporate has churned out optimistic free money movement in every of the final 4 quarters. That’s the type of consistency worth traders crave.
Globe Life’s first quarter outcomes have been fairly stable. Internet revenue rose 13.7% to over $254.2 million, up from $223.6 million a 12 months in the past. And web working revenue hit $264.1 million, a 6.5% year-over-year improve.
The corporate additionally reported that the underwriting margin for its life insurance coverage operations, which account for about 70% of its premium income, grew 6% 12 months over 12 months to $309 million within the first quarter. Underwriting margin for its medical health insurance phase, which makes up the opposite 30% of premium income, elevated 3% to $93.8 million.
These numbers reveal Globe Life’s capacity to profitably develop its core enterprise.
Nevertheless it’s not all rosy. The corporate is dealing with some headwinds.
A latest short-seller report and a Division of Justice inquiry into gross sales practices at its American Earnings Life division have put stress on the inventory.
Administration has strongly refuted the brief vendor’s claims and is cooperating with the DOJ investigation. They’ve additionally employed an unbiased regulation agency to conduct a assessment of the allegations.
These points create uncertainty, which the market hates. Nonetheless, in addition they current a possibility for traders who’re keen to look previous the short-term noise.
Globe Life’s enterprise mannequin has confirmed resilient over many many years. The corporate’s deal with serving middle-income Individuals with primary safety life insurance coverage and supplemental well being merchandise has constantly generated secure money flows.
Furthermore, Globe Life’s administration appears assured within the firm’s future. They’ve elevated their 2024 earnings steerage to a spread of $11.50 to $12.00 per share, representing about 10% development on the midpoint. The corporate can also be planning to repurchase $350 million to $370 million value of shares this 12 months, an indication that the insiders imagine the inventory is undervalued.
For affected person traders keen to climate some potential volatility, Globe Life gives an attention-grabbing worth proposition. The corporate’s robust market place in middle-income insurance coverage, coupled with its constant money era, present a stable basis. If Globe Life can navigate its present challenges and preserve its development trajectory, at the moment’s value may show to be a cut price in hindsight.
The Worth Meter charges this one “Barely Undervalued.” Nonetheless, the continued investigations and potential reputational harm warrant some warning.
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