Friday, March 16, 2012

Erie Indemnity (ERIE) 2012 Reveiw

Erie Indemnity Company (ERIE) offers property casualty insurance including automobile, homeowners and commercial multi peril, automobile and worker’s compensation insurance.

Over the last ten years, the company has grown profits at 2% rate but dividends at a 14% rate generating a 12-20% return on equity. 2008 and 2009 were difficult for ERIE, but earnings bounced back in 2010 and should continue to improve this year as a result of:

(1) rising management fees,

(2) stringent cost controls,

(3) improved product pricing,

(4) strong customer retention rate,

(5) continuing development of new policies,

(6) an active stock buy back program.


(1) auto policies are soft as a result of weak car sales,

(2) the volatile equity market negatively impacts the returns on ERIE’s investment portfolio..

ERIE is rated B++ by Value Line, has no debt and its stock yields 2.7%

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
ERIE 2.7% 6% 57% 10
IND 2.2 5 22 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
ERIE 0% 20% 3 6% B++
IND 18 11 NA 6 NA


Note: ERIE stock made great progress off its March 2009 low, quickly surpassing the downtrend off its September 2007 high (straight red line) and the November 2008 trading high (green line). Long term the stock is in an up trend (blue lines). Intermediate term, it is in an up trend (purple lines), though it is presently struggling to stay above the lower boundary of that trend. The wiggly red line is the 50 day moving average. The High Yield Portfolio does not own shares on ERIE. The upper boundary of its Buy Value Range is $35. The lower boundary of its Sell Half Range is $70. If we were fortunate enough to own this stock, we would definitely be reducing it to a one half position.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.