ERIE
Erie Indemnity Company
$242.25
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Moderate
·
Conviction
Overvalued
Trading 22.5% above fair value
Bear
$197.74
-18.4%
ROTCE 18.4% → 4.00x TBV
Fair
$197.74
-18.4%
ROTCE 24.5% → 4.00x TBV
Bull
$197.74
-18.4%
ROTCE 28.2% → 4.00x TBV
Adjust Assumptions
24.5%
6.1%
Key Value Driver
ROTCE (24.5%) vs. cost of equity (6.1%)
Implied Market Multiple
4.9x
Summary
With ROTCE of 24.5% vs. 6.1% cost of equity, fair P/TBV is 4.00x on $49.44 tangible book, implying $197.74 per share. DDM cross-check: $1374.33.
Warnings
Traditional cash flow models don't work well for banks — lending activity distorts how much cash the business actually generates.
Common valuation shortcuts don't apply here — for banks, interest payments are a core business cost, not overhead.
Dividend-based valuation: $1374.33 (595% above our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- Book value quality matters as much as level — check loan loss reserves
- Interest rate sensitivity creates non-linear earnings surprises
- Insurance reserving is actuarial, not financial — errors emerge slowly