Buffett Brain · Research note
MKL· Financial Services
Markel
Markel Corporation's valuation is appealing, but its moat and durability are questionable with a 5-year EPS decline.
Buffett fit
Partial fit
Owner
42
Durability
14
Management
86
Price
97
Buffett's checklist
Each number against Buffett's bar, and where it ranks among Financial Services stocks in our database.
How much profit the business makes on each dollar invested in it. Higher is better.
What is left of each sale after the cost of making the product. A high number often means pricing power.
The cash the business earns for its owners, compared with the price of the whole company.
How fast sales grew each year over the last five years.
How many years of today's profit you pay for at today's price. Lower means cheaper.
How much the company owes compared with what it owns outright. Lower is safer.
The four pillars
How the business measures up on each of Buffett's four tests.
Owning Markel would mean relying on its specialty insurance and reinsurance operations for cash flow, supported by Markel Ventures.
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Markel's insurance business faces risks from underwriting losses and competition, which could erode its profitability.
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Management has effectively reduced the share count by 2.0% annually, indicating shareholder-friendly actions.
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Markel's valuation metrics, including an EV/ of 8.7 and a of 11.7, suggest a fair price.
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- The full reasoning behind all four pillars
- The 5-year price target and the return it implies
- What would change the call
- Graham, Lynch and Greenblatt on the same stock
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For and against
The strongest points on each side, with the numbers behind them.
In its favor
5- 1 yield of 11.07% is attractive.
- 2Interest coverage of 11.2 indicates strong ability to cover debt costs.
- 3Low debt/equity ratio of 0.24 shows conservative financial management.
- 4Share count CAGR of -2.0% reflects effective capital return to shareholders.
Concerns
5- 1 of 6.4% is below the sector's top-quintile cutoff of 10.6%.
- 25-year EPS CAGR of -1.03% raises questions about growth prospects.
- 3EPS max decline of 113.41% suggests earnings volatility.
- 4Current ratio of 0.84 indicates potential liquidity constraints.
Price history
$1,884+42.6%· 5-year return
Weekly closing prices. Touch or hover the line for a date.
The business
How the business works
Markel Corporation operates in specialty insurance and reinsurance, as well as through its Markel Ventures segment, which includes a range of industrial and consumer businesses. The insurance segment provides various niche insurance products, while the reinsurance segment covers specialty treaty reinsurance products. Markel Ventures adds diversity with businesses in manufacturing and services. The company generated $16.59B in revenue with a net margin of 10.7%. Unit economics show a strong generation with FCF/Net income of 1.21.
What other investors would say
The same company, judged by three other documented playbooks.
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