Torchmark Corporation

TMK: NYSE

Torchmark Corporation sells health and life insurance. The company was founded in 1979, and is based in McKinney, TX.[1]

Investment thesis

Torchmark Corporation sells protection to the U.S working class.[2] Specifically, 69% of premiums are life insurance, and 31% is health products. [3] Berkshire Hathaway owns 5.60%, having owned it for multiple decades.[4] The company focuses on plain vanilla protection-oriented products, which to a large degree isolates the business from market risk and interest rate risk.[5]

Confirmation through research

Torchmark Corporation’s average life policy has historically been under $40,000.[6] We believe Torchmark Corporation has built a moat to its business thanks to what we believe is the company’s cost control discipline, scale, and strong data in its space. We believe this is the reason management would state they face no competition in the space they play. Further we believe because of Torchmark’s stable underwriting, and conservative investment portfolio, the company should be able to generate a large amount of free cash flow over time.[7] The company has put what we believe is a large portion of its free cash flow back into share repurchases. Since 2005, the company has repurchased over 50% of their shares.[8]

Variant Perception

We believe that the business is undervalued at the current valuation of 13.1x 2019E P/E.[9] We also believe that the market is not assigning a fair value to the business considering what we believe is the company’s moat, lack of competition, consistent earnings, and earnings growth.