Valuation Scorecard: Stock Rating C-Neutral (2/27/24)-Erie Indemnity Co (ERIE).

At the current price of $354, what are market expectations regarding Erie Indemnity’s future operating performance? Over the next 6 years, Erie Indemnity shares will need to reach $594 to achieve average annual stock market performance of 9.0%. To achieve Upper quartile performance, Erie Indemnity’s stock price will need to reach $699 by 2028.

Executive Summary

• Price Target Research identifies Erie Indemnity as having: high stability, above average expected growth, above average financial strength, and average profitability. A big positive influence on Erie Indemnity’s valuation is its superior Risk Profile.
• High valuation, leading shareholder returns. Current valuation levels are high relative to the Erie Indemnity Peer Group. Recent market returns have significantly outperformed the Erie Indemnity Peer Group. Total shareholder returns expected to significantly lag the overall equity market. Based on current investor expectations, Erie Indemnity shares should reach a level of $282 by 2028 — an -1.6% per year total shareholder return. A 2028 stock price of $594 would reflect median performance and a price of $699 would be required to reach upper quartile performance.
• Erie Indemnity’s achieved growth is average. Historical growth has been average relative to the Erie Indemnity Peer Group and forecasted growth is relatively high. Revenue Growth has lagged. This factor has negatively affected market perceptions of Erie Indemnity. Erie Indemnity’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable.
• Profitability is slightly above average. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Risk Profile has been Erie Indemnity’s biggest valuation strength. Erie Indemnity’s risk profile is very favorable. Overall variability has been very low with very low revenue variability, very low E.P.S. variability, and very low stock price volatility. Financial Strength is relatively high and earnings’ expectations are relatively high. The debt/capital ratio has declined very significantly.

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