Although Globe Life (currently trading at $128.88 per share) has gained 5.5% over the last six months, it has trailed the S&P 500’s 11.3% return during that period. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Globe Life, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Globe Life Not Exciting?
We're swiping left on Globe Life for now. Here are three reasons you should be careful with GL and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Insurance companies generate revenue three ways. The first is the core insurance business itself, represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected but not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from policy administration, annuities, and other value-added services.
Over the last five years, Globe Life grew its revenue at a tepid 5% compounded annual growth rate. This was below our standard for the insurance sector.
2. Net Premiums Earned Point to Soft Demand
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Globe Life’s net premiums earned has grown at a 4.6% annualized rate over the last two years, worse than the broader insurance industry and in line with its total revenue.
3. Growing BVPS Reflects Strong Asset Base
We consider book value per share (BVPS) a critical metric for insurance companies. BVPS represents the total net worth per share, providing insight into a company’s financial strength and ability to meet policyholder obligations.
Although Globe Life’s BVPS declined at a 2% annual clip over the last five years. the good news is that its growth inflected positive over the past two years as BVPS grew at an excellent 20.2% annual clip (from $49.04 to $70.84 per share).
Final Judgment
Globe Life isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 1.8× forward P/B (or $128.88 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Globe Life
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