I ran Erie Indemnity (ERIE) through Graham, Buffett and Damodaran's frameworks. Here's what I found
#Erie Indemnity is an insurance intermediary that has been compounding owner earnings to $520 million while the market prices in 0% annual growth. That gap caught my attention, so I ran it through three frameworks. Curious to hear your thoughts.
Graham - Is it safe?
Score: 3/7. Revenue at $4.1B clears his threshold. EPS up 101% over five years. But the current ratio is 1.27 (he wants 2.0+), P/E is 23.6x (he wants under 15), and the Graham Number is $102.49 against a current price of $252.49. No margin of safety. Graham would pass.
Buffett - Is it a great business?
Score: 78/100. ROIC of 18.7% against a 10% WACC proxy. ROE of 26.2%. Every dollar retained has created $5.17 in market value. Owner earnings of $520M, growing. Net margin 13.8%. The drag: D/E of 2.7 scores 0/5 on debt discipline, and earnings yield of 4.2% sits below the current 10-year Treasury. Owner Earnings DCF puts fair value at $385.23, implying 53% upside from $252.49.
Damodaran - Is it worth the price?
Base case DCF: $456.25. Bear: $341.79. Bull: $643.36. All above current price. The reverse DCF shows the market pricing in 0% growth, against a fundamental estimate of 13.4%. Low bar to beat. The problem: 84% of intrinsic value sits in terminal value. That's an assumption, not a fact. Model spread across all four methods: 185%.
Verdict: WATCH
Great business, below fair value on two of three frameworks, but the model divergence and leverage make a strong conviction call difficult. I'd want to see a pullback toward $220–$230 before acting.