Intrinsic value of Employers Holdings - EIG

Previous Close

$42.30

  Intrinsic Value

$0.50

stock screener

  Rating & Target

str. sell

-99%

Previous close

$42.30

 
Intrinsic value

$0.50

 
Up/down potential

-99%

 
Rating

str. sell

Our model is not good at valuating stocks of financial companies, such as EIG.

We calculate the intrinsic value of EIG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  823
  848
  876
  905
  938
  972
  1,009
  1,049
  1,092
  1,137
  1,185
  1,236
  1,290
  1,348
  1,408
  1,472
  1,540
  1,611
  1,687
  1,766
  1,850
  1,938
  2,030
  2,128
  2,230
  2,338
  2,452
  2,572
  2,697
  2,829
Variable operating expenses, $m
  673
  693
  715
  739
  766
  794
  824
  857
  891
  928
  965
  1,006
  1,050
  1,097
  1,146
  1,199
  1,254
  1,312
  1,373
  1,438
  1,506
  1,577
  1,653
  1,732
  1,816
  1,904
  1,996
  2,093
  2,196
  2,303
Fixed operating expenses, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Total operating expenses, $m
  672
  692
  714
  738
  765
  793
  823
  856
  890
  927
  964
  1,005
  1,049
  1,096
  1,145
  1,198
  1,253
  1,311
  1,371
  1,436
  1,504
  1,575
  1,651
  1,730
  1,814
  1,902
  1,994
  2,091
  2,194
  2,301
Operating income, $m
  152
  156
  162
  167
  173
  180
  187
  194
  202
  210
  222
  231
  241
  252
  263
  275
  288
  301
  315
  330
  346
  362
  379
  397
  417
  437
  458
  480
  504
  528
EBITDA, $m
  548
  564
  582
  602
  624
  647
  671
  698
  726
  756
  788
  822
  858
  896
  937
  979
  1,024
  1,071
  1,121
  1,174
  1,230
  1,288
  1,350
  1,415
  1,483
  1,555
  1,630
  1,709
  1,793
  1,881
Interest expense (income), $m
  0
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
  145
Earnings before tax, $m
  7
  12
  17
  22
  28
  35
  42
  49
  57
  66
  77
  87
  97
  107
  119
  131
  143
  157
  171
  185
  201
  217
  235
  253
  272
  292
  313
  336
  359
  384
Tax expense, $m
  2
  3
  5
  6
  8
  9
  11
  13
  15
  18
  21
  23
  26
  29
  32
  35
  39
  42
  46
  50
  54
  59
  63
  68
  73
  79
  85
  91
  97
  104
Net income, $m
  5
  9
  12
  16
  21
  26
  31
  36
  42
  48
  56
  63
  71
  78
  87
  95
  105
  114
  125
  135
  147
  159
  171
  185
  199
  213
  229
  245
  262
  280

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Adjusted assets (=assets-cash), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Revenue / Adjusted assets
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $m
  3,936
  4,055
  4,185
  4,327
  4,481
  4,647
  4,825
  5,016
  5,219
  5,436
  5,666
  5,910
  6,169
  6,442
  6,732
  7,038
  7,361
  7,703
  8,062
  8,441
  8,841
  9,262
  9,705
  10,171
  10,662
  11,178
  11,721
  12,292
  12,892
  13,524
Working capital, $m
  -2,926
  -3,015
  -3,112
  -3,218
  -3,332
  -3,455
  -3,588
  -3,729
  -3,880
  -4,041
  -4,212
  -4,394
  -4,586
  -4,790
  -5,005
  -5,233
  -5,473
  -5,727
  -5,994
  -6,276
  -6,573
  -6,886
  -7,216
  -7,562
  -7,927
  -8,311
  -8,715
  -9,139
  -9,586
  -10,055
Total debt, $m
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
  2,678
Total liabilities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total equity, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total liabilities and equity, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  9
  12
  16
  21
  26
  31
  36
  42
  48
  56
  63
  71
  78
  87
  95
  105
  114
  125
  135
  147
  159
  171
  185
  199
  213
  229
  245
  262
  280
Depreciation, amort., depletion, $m
  396
  408
  421
  435
  451
  467
  485
  504
  524
  546
  567
  591
  617
  644
  673
  704
  736
  770
  806
  844
  884
  926
  970
  1,017
  1,066
  1,118
  1,172
  1,229
  1,289
  1,352
Funds from operations, $m
  401
  417
  433
  452
  471
  493
  516
  540
  566
  594
  623
  654
  687
  723
  760
  799
  841
  885
  931
  979
  1,031
  1,085
  1,142
  1,202
  1,265
  1,331
  1,401
  1,474
  1,551
  1,632
Change in working capital, $m
  -80
  -88
  -97
  -106
  -114
  -123
  -132
  -142
  -151
  -161
  -171
  -182
  -192
  -204
  -215
  -228
  -240
  -254
  -267
  -282
  -297
  -313
  -329
  -347
  -365
  -384
  -404
  -425
  -446
  -469
Cash from operations, $m
  481
  505
  530
  557
  586
  616
  648
  682
  717
  755
  794
  836
  880
  926
  975
  1,027
  1,081
  1,138
  1,198
  1,261
  1,328
  1,398
  1,471
  1,548
  1,630
  1,715
  1,805
  1,899
  1,998
  2,102
Maintenance CAPEX, $m
  -383
  -394
  -405
  -419
  -433
  -448
  -465
  -483
  -502
  -522
  -544
  -567
  -591
  -617
  -644
  -673
  -704
  -736
  -770
  -806
  -844
  -884
  -926
  -970
  -1,017
  -1,066
  -1,118
  -1,172
  -1,229
  -1,289
New CAPEX, $m
  -105
  -119
  -130
  -142
  -154
  -166
  -178
  -190
  -203
  -216
  -230
  -244
  -259
  -274
  -290
  -306
  -323
  -341
  -360
  -379
  -399
  -421
  -443
  -466
  -491
  -516
  -543
  -571
  -600
  -631
Cash from investing activities, $m
  -488
  -513
  -535
  -561
  -587
  -614
  -643
  -673
  -705
  -738
  -774
  -811
  -850
  -891
  -934
  -979
  -1,027
  -1,077
  -1,130
  -1,185
  -1,243
  -1,305
  -1,369
  -1,436
  -1,508
  -1,582
  -1,661
  -1,743
  -1,829
  -1,920
Free cash flow, $m
  -7
  -8
  -6
  -3
  -1
  2
  5
  9
  12
  17
  20
  25
  30
  36
  41
  48
  54
  61
  68
  76
  84
  93
  102
  112
  122
  132
  144
  156
  168
  181
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total cash flow (excl. dividends), $m
  -7
  -8
  -6
  -3
  -1
  2
  5
  9
  12
  17
  20
  25
  30
  36
  41
  48
  54
  61
  68
  76
  84
  93
  102
  112
  122
  132
  144
  156
  168
  181
Retained Cash Flow (-), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash available for distribution, $m
  0
  0
  0
  0
  0
  2
  5
  9
  12
  17
  20
  25
  30
  36
  41
  48
  54
  61
  68
  76
  84
  93
  102
  112
  122
  132
  144
  156
  168
  181
Discount rate, %
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.66
  30.09
  31.60
  33.18
  34.84
  36.58
  38.41
  40.33
  42.35
  44.46
  46.69
  49.02
  51.47
  54.05
  56.75
  59.59
  62.57
PV of cash for distribution, $m
  0
  0
  0
  0
  0
  1
  1
  2
  2
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Employers Holdings, Inc. is a holding company. Through its insurance subsidiaries, the Company provides workers' compensation insurance coverage to select, small businesses in low to medium hazard industries. It provides workers' compensation insurance under a statutory system wherein employers are required to provide coverage for their employees' medical, disability, vocational rehabilitation, and/or death benefit costs for work-related injuries or illnesses. As of December 31, 2016 the Company provided workers' compensation insurance in 36 states and the District of Columbia, with a concentration in California. Its insurance subsidiaries include Employers Insurance Company of Nevada (EICN), Employers Compensation Insurance Company (ECIC), Employers Preferred Insurance Company (EPIC) and Employers Assurance Company (EAC). The Company's insurance products are jointly offered and marketed with and through its partners and alliances.

FINANCIAL RATIOS  of  Employers Holdings (EIG)

Valuation Ratios
P/E Ratio 12.7
Price to Sales 1.7
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 11
Price to Free Cash Flow 11.5
Growth Rates
Sales Growth Rate 3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -58.3%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 3.8%
Total Debt to Equity 3.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 12.8%
Ret/ On T. Cap. - 3 Yr. Avg. 12.9%
Return On Equity 13.4%
Return On Equity - 3 Yr. Avg. 14.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 19.2%
EBITDA Margin - 3 Yr. Avg. 16.3%
Operating Margin 18.2%
Oper. Margin - 3 Yr. Avg. 15.3%
Pre-Tax Margin 18.1%
Pre-Tax Margin - 3 Yr. Avg. 15%
Net Profit Margin 13.7%
Net Profit Margin - 3 Yr. Avg. 13.1%
Effective Tax Rate 24.1%
Eff/ Tax Rate - 3 Yr. Avg. 11.6%
Payout Ratio 11.2%

EIG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EIG stock intrinsic value calculation we used $801 million for the last fiscal year's total revenue generated by Employers Holdings. The default revenue input number comes from 2017 income statement of Employers Holdings. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EIG stock valuation model: a) initial revenue growth rate of 2.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 15.2%, whose default value for EIG is calculated based on our internal credit rating of Employers Holdings, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Employers Holdings.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EIG stock the variable cost ratio is equal to 81.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $-1 million in the base year in the intrinsic value calculation for EIG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Employers Holdings.

Corporate tax rate of 27% is the nominal tax rate for Employers Holdings. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EIG stock is equal to 0.8%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EIG are equal to 478%.

Life of production assets of 10 years is the average useful life of capital assets used in Employers Holdings operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EIG is equal to -355.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $0 million for Employers Holdings - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 32 million for Employers Holdings is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Employers Holdings at the current share price and the inputted number of shares is $1.4 billion.

RELATED COMPANIES Price Int.Val. Rating
AMSF AMERISAFE 62.10 10.28  str.sell

COMPANY NEWS

▶ EMPLOYERS Launches New Corporate Website   [Jul-17-18 03:30PM  Business Wire]
▶ Employers Holdings: 1Q Earnings Snapshot   [Apr-25-18 06:11PM  Associated Press]
▶ Employers Holdings posts 4Q profit   [05:03AM  Associated Press]
▶ 6 Companies Growing Revenue and Earnings   [Jan-17-18 03:42PM  GuruFocus.com]
▶ Why Employers Holdings Inc (EIG) Could Be A Buy   [Nov-03-17 10:19AM  Simply Wall St.]
▶ Employers Holdings posts 3Q profit   [Oct-25-17 06:19PM  Associated Press]
▶ Employers Holdings posts 2Q profit   [Jul-28-17 01:34AM  Associated Press]
▶ Employers Holdings posts 1Q profit   [Apr-26-17 06:58PM  Associated Press]
▶ Employers Holdings posts 4Q profit   [05:02AM  Associated Press]
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