In this commentary, I will examine Erie Indemnity Company’s (NASDAQ:ERIE) latest earnings update (31 December 2017) and compare these figures against its performance over the past couple of years, as well as how the rest of the insurance industry performed. As an investor, I find it beneficial to assess ERIE’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. See our latest analysis for Erie Indemnity
Was ERIE’s recent earnings decline indicative of a tough track record?
I use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This enables me to assess many different companies on a similar basis, using the latest information. For Erie Indemnity, its most recent bottom-line (trailing twelve month) is US$197.00M, which, against the previous year’s level, has plunged by -6.35%. Given that these values are somewhat nearsighted, I have computed an annualized five-year value for Erie Indemnity’s earnings, which stands at US$175.20M This means that although earnings declined against last year, over time, Erie Indemnity’s earnings have been increasing on average.
What’s enabled this growth? Well, let’s take a look at if it is solely due to an industry uplift, or if Erie Indemnity has seen some company-specific growth. Over the last couple of years, Erie Indemnity expanded bottom-line, while its top-line fell, by efficiently controlling its costs. This resulted in to a margin expansion and profitability over time. Scanning growth from a sector-level, the US insurance industry has been growing, albeit, at a subdued single-digit rate of 9.91% in the previous year, and 8.61% over the past five. This shows that whatever uplift the industry is profiting from, Erie Indemnity has not been able to reap as much as its average peer.
What does this mean?
Though Erie Indemnity’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. I suggest you continue to research Erie Indemnity to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for ERIE’s future growth? Take a look at our free research report of analyst consensus for ERIE’s outlook.
- 2. Financial Health: Is ERIE’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.