PRI Stock Study (6-27-23)

I recently did a stock study on Primerica Inc. (PRI) with a closing price of $189.37.

CFRA writes:

     > Primerica, Inc., together with its subsidiaries, provides financial
     > products to middle-income households in the United States and
     > Canada. The company operates in four segments: Term Life
     > Insurance; Investment and Savings Products; Senior Health; and
     > Other Distributed Products. The Term Life Insurance segment
     > Corporate and underwrites individual term life insurance products.
     > The Investment and Savings Products segment provides mutual funds
     > and various retirement plans, managed investments, variable and
     > fixed annuities, and fixed indexed annuities. The Senior Health
     > segment offers segregated funds; and medicare advantage and
     > supplement products. The Corporate and Other Distributed Products
     > segment provides mortgage loans; prepaid legal services that assist
     > subscribers with legal matters, such as drafting wills, living wills
     > and powers of attorney, trial defense, and motor vehicle-related
     > matters; ID theft defense services; auto and homeowners’ insurance;
     > home automation solutions; and insurance products, including
     > supplemental health and accidental death. It distributes and sells
     > licensed sales representatives.

Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 9.6% and 16.4%, respectively. Lines are generally up, straight, and parallel with EPS dips in ’18 and ’21. PTPM leads peer and industry averages despite trending lower [the last few years] going from 19.8% in ’13 to 18.2% in ’22 with a last-5-year mean of 21.0%.

Also over the past decade, ROE leads peer and industry averages while trending up from 13.0% in ’13 to 22.1% in ’22 with a last-5-year mean of 21.1%. Debt-to-Capital over the decade has been higher than peer and industry averages while trending up from 23.5% in ’13 to 54.8% in ’22 with a last-5-year mean of 50.1%. Interest Coverage is 19.9, and Value Line rates the company A for Financial Strength.

With regard to sales growth:

• CNN Business projects 7.4% YOY and 5.4% per year for ’23 and ’22-’24, respectively (based on 5 analysts).
• YF projects YOY 4.6% and 5.2% for ’23 and ’24, respectively (4 analysts).
• Zacks projects YOY 4.5% and 5.3% for ’23 and ’24, respectively (5).
• Value Line projects 8.0% annualized growth from ’22-’27.
• CFRA gives ACE of 4.8% YOY and 5.3% per year for ’23 and ’22-’24, respectively (5).
• M* offers a 2-year ACE of 6.6% annualized growth.

I am discounting the one long-term estimate by 37.5% and forecasting 5.0% per year.

With regard to EPS growth:

• CNN Business projects 34.4% YOY and 22.5% per year for ’23 and ’22-’24, respectively (based on 5 analysts), along with 5-year annualized growth of 14.0%.
• MarketWatch projects annualized growth of 25.5% and 20.3% for ’22-’24 and ’22-’25, respectively (6 analysts).
• Nasdaq.com projects 11.3% and 11.0% for ’23-’25 and ’23-’26 [5, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 34.4% and 11.6% for ’23 and ’24 (5), along with 10.5% annualized growth for the next five years.
• Zacks projects YOY 34.0% and 11.5% for ’23 and ’24, respectively (5).
• Value Line projects 14.2% annualized growth from ’22-’27.
• CFRA projects 57.9% YOY and 32.8% per year for ’23 and ’22-’24, respectively (6).

These near-term estimates are unusually high, which makes me wonder if the company will be completing an acquisition. With EPS growth of only 0.9% over the last two years, though, a spike in ’23 will merely get closer to the historical trendline.

I am forecasting below the long-term estimate range (mean of three: 12.9%) at 8.0%. I will use ’22 EPS of $9.74/share rather than ’23 Q1 $11.40 (annualized) as the initial value.

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 14.0 in ’17 to 19.1 in ’21 with a last-5-year mean of 16.8. The last-5-year-mean average P/E is 13.8. I am forecasting toward the lower end of the range (10-year median is 16.0). I typically lean toward a more conservative forecast, but I can’t go much lower here without the study ending up INVALID.

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 6.4 in ’20 to 13.7 in ’21 with a last-5-year mean of 10.9. I am forecasting near the bottom of the range (only ’20 is lower).

My Low Stock Price Forecast (LSPF) is the default value of $77.90 based on $9.74/share initial value. This is 58.9% less than the previous closing price and 29.3% less than the 2022 low.

Over the past decade, Payout Ratio has ranged from 10.3% in ’17 to 22.6% in ’22 with a last-5-year mean of 17.8%. I am forecasting just below the range at 10.0%.

These inputs land PRI in the SELL zone with a U/D ratio of 0.2. Total Annualized Return (TAR) is 3.3%.

PAR (using Forecast Average—not High—P/E) is -1.9%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead, but even this is less than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 8 studies over the past 90 days (my study and 3 other outliers excluded), averages (lower of mean/median) for projected sales growth, EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 8.1%, 11.0%, 15.9, 10.4, and 15.0%, respectively. I am lower across the board. Value Line projects an average annual P/E of 12.5, which is lower than MS (13.2) and higher than mine (11.5).

MS high (low) EPS is $18.54/share ($9.76/share) vs. my $14.31 ($9.74). My high EPS is lower due to a lower growth rate.

MS LSPF of $107.00 implies a Forecast Low P/E of 11.0 (vs. the above-stated 10.4). This is 5.4% greater than the default value $9.76 * 10.4 = $101.50, which results in more aggressive zoning. My LSPF is 27.2% lower than MS.

PEG ratio and Relative Value [(current P/E) / 5-year-mean average P/E] are other valuation metrics I have recently begun to monitor. Based on my forecast EPS growth rate, PEG is 2.10 where 1.50 is generally regarded as the upper limit. Relative Value (M* data) is 1.20. The stock is overvalued according to both metrics.

While MS provides too small a sample to draw any valid conclusions, MOS appears healthy in this study. The stock is beyond overcooked at the moment, though, after rallying ~60% in the last 12 months. I would look to re-evaluate under $112/share.