The stock of Everest Re Group (NYSE:RE, 30-year Financials) is estimated to be modestly undervalued, 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 $245.265 per share and the market cap of $9.8 billion, Everest Re Group stock appears to be modestly undervalued. GF Value for Everest Re Group is shown in the chart below.
Because Everest Re Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 13.8% over the past three years and is estimated to grow 7.35% annually over the next three to five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Everest Re Group has a cash-to-debt ratio of 0.59, which is worse than 77% of the companies in Insurance industry. GuruFocus ranks the overall financial strength of Everest Re Group at 5 out of 10, which indicates that the financial strength of Everest Re Group is fair. This is the debt and cash of Everest Re Group over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Everest Re Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $10.2 billion and earnings of $20.96 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, the profitability of Everest Re Group is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Everest Re Group over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Everest Re Group is 13.8%, which ranks better than 82% of the companies in Insurance industry. The 3-year average EBITDA growth is 12.3%, which ranks better than 72% of the companies in Insurance industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Everest Re Group’s return on invested capital is 3.01, and its cost of capital is 5.44. The historical ROIC vs WACC comparison of Everest Re Group is shown below:
Overall, the stock of Everest Re Group (NYSE:RE, 30-year Financials) is believed to be modestly undervalued. The company’s financial condition is fair and its profitability is fair. Its growth ranks better than 72% of the companies in Insurance industry. To learn more about Everest Re Group stock, you can check out its 30-year Financials here.
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