In April 2010, Citigroup (NYSE: C) spun out financial services company Primerica (NYSE: PRI).
Since that point, Primerica’s stock has absolutely thrashed the total return of the S&P 500.
The chart below is an investor’s dream!
From the time Primerica went public through today, the S&P 500 has generated a terrific return of 387%.
Meanwhile, Primerica has generated a total return for shareholders in excess of 1,000%. Simply outstanding!
Through a network of more than 130,000 licensed North American sales representatives, Primerica sells life insurance, mutual funds and other financial products for third parties.
The company’s clients are, for the most part, households that have under $100,000 in annual income. These people are often in need of help with retirement planning and frequently have inadequate life insurance policies.
That’s why roughly 60% of Primerica’s income comes from its term life insurance business. And the other 40% comes from selling investment and deposit products.
The company’s salespeople are aggressive. They are commission-based and effective.
And we can see clear proof of that in Primerica’s earnings per share (EPS), which have increased fourfold over the past decade.
This growth in EPS is what has driven Primerica’s stock outperformance.
Primerica’s secret weapon has been the company’s relentless focus on repurchasing shares.
Since Primerica’s IPO date just over a decade ago, the company has cut its share count in half.
I don’t often like how corporate teams deploy share repurchases.
If the shares being repurchased don’t represent good value, then a buyback destroys shareholder value. We see that far too often from corporate America.
Clearly, though, that hasn’t been the case here.
By repurchasing shares at attractive prices, Primerica’s leadership has accelerated the company’s ability to grow earnings on a per-share basis.
And remember, folks: It is on a per-share basis that we want to see the companies we own grow.
Despite growing EPS at a terrific annualized rate of more than 16% over the past dozen years, Primerica’s valuation is rather modest.
The consensus analyst estimate for Primerica’s 2024 EPS is $17.20.
With a current share price of just over $200, that means this great growth company trades at just 11.62 times 2024 earnings.
I will take a company with this long-term growth record at that valuation every day of the week.
Primerica has years of growth ahead, and we can own that growth at a very nice price.
The Value Meter rates Primerica shares as “Slightly Undervalued.”
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