Stock valuation Old Republic International

The following stock analysis is about about an insurance company called ORI, it is not so well known but currently it gets more and more attractive in the dividend investors community. But let’s have a look at the current valuation and if it is worth an investment.

Old Republic International Corporation is an insurance company with an impressive history of dividend payments. It is one of the so called dividend aristocrats as it has increased its dividend for now already 35 years. Nevertheless the stock currently seems to be overvalued, as it is very close to its 5 year high of 21.19 USD.

ORI_Chart

But is it really the case? Well let’s have a look at the development the fundamentals.

Development Earnings per share

Year EPS in USD
2013 1.57
2014 1.44
2015 1.48
2016 1.62

source:morningstar.com

As you can see the development of the EPS in the last 4 years have been very stable, but at the same time the growth was very low. If I compare the growth of the EPS from to 2013 to 2016, which is in total 3.18%, to the development of the stock price from 2014 until the end of the year 2016, which is 21.63%, the stock seems to be overvalued. The price on the 30th of December 2013 was 15.62 USD and on the 30th of December in 2016 it was 19.00 USD.

Development of Free Cashflow per share

Year Free Cashflow per Share
2013 2.36
2014 -0.48
2015 2.55
2016 1.77

source:morningstar.com

Again you can see a quite stable free cashflow per share throughout the years, even though in 2014 it was negative. But again no growth at all, you actually can see a decline of 25%.

Development of Book Value per Share

Year Book Value per share in USD
2013 14.27
2014 15.03
2015 14.71
2016 16.92

source:morningstar.com

There you can finally see the growth of 18.27% and this almost in line with development of the share price in the last 4 years. Interesting to see is the very low price/book ratio of 1.09 in 2013 and of 1.12 in the end of 2016. Where does that come from? Well I guess ORI is not on every investors radar. But I think through the attractive dividend yield this will change in the future.

Finally let’s have a look at the dividend yield. In the end of 2013 the dividend yield was at 4.6%, by the end of 2016 it was at 3.94% and currently it is 3.71%. As the growth of the dividend is very low, the yield of course is decreasing. I personally was very lucky as I bought ORI for 16.90 USD per share at the dip in November. So I currently have yield of costs of 4.43%.

Summary

It think that currently the stock is overvalued even though it offers an attractive yield of 3.71% the growth per year is just too low to buy it at the current prices. But this slow growth is also an explanation for the very low price/book ratio as most of the investors are aiming for more growth. Nevertheless ORI is an attractive stock and a very good addition in my portfolio. It offers a stable dividend, with a reasonable pay out ratio, in a very stable sector. It’s just a boring stock and in this case boring is good.

What do you think about ORI? Do you have it in your portfolio ?

Disclosure: Long ORI

I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.

2 Comments

  1. I love this company. I’ve had it on my radar for awhile and I was bummed out when I saw the price move into the 20’s. I was thinking about getting in when it was around the 16 range but I always had other investments I chose. I finally took a position at the 20 range since it has been since it has been stable. I know it’s a bit overvalued but if the stock has a pullback I’ll happily add more.
    Great write up!

    • Thanks for the kind words. I had it on my watch list for quite a while as well and at the last decrease I finally bought some shares.

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