Dominance For One Financial Firm
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Primerica Financial Services (NYSE: PRI) distributes financial products (life insurance, mutual funds, debt elimination) to the underserved middle class in the U.S., Canada, Puerto Rico, and Spain. Yes, the company only has a market cap of $1.8 billion, but recently joined the Standard & Poor's Mid Cap 400 index. Primerica has partnered with many companies from the time it was founded in 1977, but is its future as bright as its partners/competitors?
Invesco (NYSE: IVZ) is a very well-known financial firm that has partnered with Primerica in the past few years. It was very difficult to drive down I-25 without seeing the name attached to the Denver Bronco's stadium. With revenues increasing eight of the past ten years (down in 2008 and 2009), the company has generated more than $4 billion in the past TTM. With an industry average of 17, Invesco currently shows a P/E of 16.8 and a forward P/E of 12.5. The company has a market cap of approximately $11.8 billion and a Free Cash Flow (FCF) yield of 4.5%. With Earnings Per Share (EPS) rising just five of the past ten years, its earnings yield is 5.9%.
After 110 years, Legg Mason (NYSE: LM) is a pure global asset manager whose vision is to "be a proven leader in global asset management by delivering specialized investment solutions that meet our clients' objectives and by rewarding our shareholders and employees." There has been a long relationship between Legg Mason and Primerica. In 2012, Legg Mason generated approximately $2.6 billion in revenue, and they show a market cap of $3.63 billion. EPS have risen six out of the past ten years, but currently shows a .04% earnings yield. The company shows a forward P/E of 9.8 and a FCF yield of 13%.
I know people that work for MetLife (NYSE: MET), but I am not sold on buying their stock. MetLife has a market cap of over $39 billion and EPS that have risen seven of the past ten years. MetLife has designed products exclusively for Primerica representatives that have been very successful. We have all seen the blimps with snoopy on them, but will popularity lead to success? The company shows a P/E of 14.8 (5 lower than the industry average), and a forward P/E of only 6.8%. After more than doubling revenues in the past decade, the company grossed $68 billion in the past year. MetLife shows a better earnings yield than any of the other companies at 6.8%. Let's switch to a different type of financial company that deals primarily with insurance.
Prudential (NYSE: PRU) is arguably one of the most well-known insurance companies in the world. The company boasts a market cap of over $26 billion, and a P/E of 20.2. Prudential is not in partnership with America, but is one of its biggest competitors in the life insurance industry. The majority of Prudential's life insurance is cash value, which is what Primerica makes money on by replacing it with the cheaper term insurance. The company does boast a dividend yield of 3.6%, compared to an industry average of 2.4%. Prudential shows a forward P/E of just 7.4 and an earnings yield of 5%. Eight of the past ten years Prudential has increased its EPS to $7.22. Prudential has been victim to a lot of scrutiny throughout its tenure, even having a book written exposing unethical practices called Serpent on the Rock.
Primerica is the largest (number of representatives) independent financial services marketing organization in North America. The company has nearly 100,000 life insurance licensed representatives, and have managed to license over 50% of all mutual fund representatives nationwide in the past few years. Let's look at some metrics of this company and let you decide if it’s worth your investment dollars.
The company does show a reasonably low dividend yield of just 1%, but shows a current P/E of 10.9 (8.9 lower than the industry average) with a forward P/E of 9.5. The company spun off from Citi in April of 2010, and shows an earnings yield of 9.2%. EPS and revenues have decreased in the past few years, but this is largely due to the spin off agreement with Citi. From my understanding all of Primerica's life insurance premiums before 2010 go directly to Citi, so the company has essentially started over.
The company has continually bought back shares, and currently shows a 91% institutional ownership. Legg Mason owns 2% less of its own company but is the closest competitor to Primerica in that regard. Primerica soared 33% in the hours following its IPO and has continued this trend. Shareholders of Primerica cannot be disappointed with the company's performance. Looking at the graph below it shows just how successful the stock has been - it has outperformed its closest competitor by more than 300%. Check it out.
The Foolish Conclusion...
Invesco, Prudential, Legg Mason, and MetLife are all good companies with some good metrics. They may all present opportunities for investors, but none compare to that of Primerica's. What do these companies offer than Primerica doesn't? Primerica's business model seems nearly flawless - use an educational approach to market financial services/products to 85% of Americans (the middle class) that these other companies have abandoned.
Primerica has shown unprecedented success with its stock, and is now focused on growing its sales force even more. Recently the company has become more focused on the investment side of financial services, and the results should be astounding. I don't see any reason why the company won't continue to succeed as long as it stays true to its values.
tlwofford has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!