Ebix, Inc. (NASDAQ:EBIX)

CAPS Rating: 4 out of 5

The Company is an international provider of software and Internet-based solutions for the insurance industry.

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Member Avatar AnsgarJohn (99.22) Submitted: 7/10/2014 3:34:58 PM : Outperform Start Price: $12.89 EBIX Score: -2.01


Detailed Analysis   Guru Score: 92%   Find Other Stocks that Pass This Guru
STAGE 1: "Is this a Buffett type company?"

A bedrock principle for Buffett is that his type of company has a "durable competitive advantage" as compared to being a "price competitive" or "commodity" type of business. Companies with a "durable competitive advantage" are more likely to be found in these sub-industries: Brand Name Fast Food Restaurants, Brand Name Beverages, Brand Name Foods, Brand Name Toiletries and Household Products, Brand Name Clothing, Brand Name Prescription Drugs, Advertising, Advertising Agencies, TV, Newspapers, Magazines, Direct Mail, Repetitive Services for Businesses, Low Cost Producers of Insurance, furniture, or Low Cost Retailers. While you should be easily able to explain where the company's pricing power comes from (i.e. a strong regional brand image, a business tollgate, its main products are #1 or # 2 in its field and has been on the market for years and hasn't changed at all, a consumer or business ends up buying the same product many times in a year, etc. or having the lowest production cost among its competition), there are certain figures that one can look at that can qualify the company as having a durable competitive advantage.

LOOK FOR EARNINGS PREDICTABILITY: [PASS]

Buffett likes companies to have solid, stable earnings that are continually expanding. This allows him to accurately predict future earnings. Annual earnings per share from earliest to most recent were 0.08, 0.15, 0.21, 0.40, 0.76, 1.03, 1.51, 1.75, 1.80, 1.53. Buffett would consider EBIX's earnings predictable, although earnings have declined 1 time(s) in the past seven years, with the most recent decline 1 years ago. The dips have totaled 15.0%. EBIX's long term historical EPS growth rate is 8.6%, based on the average of the 3, 4 and 5 year historical eps growth rates.

LOOK AT THE ABILITY TO PAY OFF DEBT [PASS]

Buffett likes companies that are conservatively financed. Nonetheless, he has invested in companies with large financing divisions and in firms with rather high levels of debt. EBIX has a debt of 40.2 million and earnings of 58.1 million, which could be used to pay off the debt in less than two years, which is considered exceptional.

LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON EQUITY: [PASS]

Buffett likes companies with above average return on equity of at least 15% or better, as this is an indicator that the company has a durable competitive advantage. US corporations have, on average, returned about 12% on equity over the last 30 years. The average ROE for EBIX, over the last ten years, is 20.7%, which is high enough to pass. It is not enough that the average be at least 15%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROE must be at least 10% for Buffett to feel comfortable that the ROE is consistent. In addition, the average ROE over the last 3 years must also exceed 15%. The ROE for the last 10 years, from earliest to latest, is 15.5%, 21.7%, 20.7%, 20.4%, 32.3%, 20.9%, 23.6%, 20.1%, 18.2%, 14.0%, and the average ROE over the last 3 years is 17.4%, thus passing this criterion.

LOOK FOR CONSISTENTLY HIGHER THAN AVERAGE RETURN ON TOTAL CAPITAL: [PASS]

Because some companies can be financed with debt that is many times their equity, they can show a consistently high ROE, yet still be in unattractive price competitive businesses. To screen this out, for non-financial companies Buffett also requires that the average Return On Total Capital (ROTC) be at least 12% and consistent. In addition, the average ROTC over the last 3 years must also exceed 12%. Return On Total Capital is defined as the net earnings of the business divided by the total capital in the business, both equity and debt. The average ROTC for EBIX, over the last ten years, is 17.8% and the average ROTC over the past 3 years is 15.3%, which is high enough to pass. It is not enough that the average be at least 12%. For each of the last 10 years, with the possible exception of the last fiscal year, the ROTC must be at least 9% for Buffett to feel comfortable that the ROTC is consistent. The ROTC for the last 10 years, from earliest to latest, is 10.2%, 18.3%, 20.0%, 15.2%, 26.6%, 20.8%, 21.3%, 17.8%, 15.3%, 12.7%, thus passing this criterion.

LOOK AT CAPITAL EXPENDITURES: [PASS]

Buffett likes companies that do not have major capital expenditures. That is, he looks for companies that do not need to spend a ton of money on major upgrades of plant and equipment or on research and development to stay competitive. EBIX's free cash flow per share of $1.37 is positive, indicating that the company is generating more cash that it is consuming. This is a favorable sign, and so the company passes this criterion.

LOOK AT MANAGEMENT'S USE OF RETAINED EARNINGS: [PASS]

Buffett likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, Buffett takes the total amount of retained earnings over the previous ten years of $8.93 and compares it to the gain in EPS over the same period of $1.45. EBIX's management has proven it can earn shareholders a 16.2% return on the earnings they kept. This return is more than acceptable to Buffett. Essentially, management is doing a great job putting the retained earnings to work.

HAS THE COMPANY BEEN BUYING BACK SHARES: [NEUTRAL]

Buffett likes to see falling shares outstanding, which indicates that the company has been repurchasing shares. This indicates that management has been using excess capital to increase shareholder value. EBIX's shares outstanding have not fallen in either the current year or the last 3 or 5 years and so it fails this criterion. This is a bonus criterion and will not adversely affect the ability of a stock to pass the strategy as a whole if it is failed.

The preceding concludes Buffett's qualitative analysis. If and when he gets positive responses to all the above criteria, he would then proceed with a price analysis. The price analysis will determine whether or not the stock should be bought. The following is how he would evaluate EBIX quantitatively.

STAGE 2: "Should I buy at this price?" Although a firm may be a Buffett type company, he won't invest in it unless he can get a favorable price that allows him a great long term return.

CALCULATE THE INITIAL RATE OF RETURN: [No Pass/Fail]

Buffett compares his type of stocks to bonds, and likes to see what a company's initial rate of return is. To calculate the initial rate of return, take the trailing 12-month EPS of $1.49 and divide it by the current market price of $13.37. An investor, purchasing EBIX, could expect to receive a 11.14% initial rate of return. Furthermore, he or she could expect the rate to increase 8.6% per year, based on the average of the 3, 4 and 5 year historical eps growth rates, as this is how fast earnings are growing.

COMPARE THE INITIAL RATE OF RETURN WITH THE LONG-TERM TREASURY YIELD: [PASS]

Buffett favors companies in which the initial rate of return is around the long-term treasury yield. Nonetheless, he has invested in companies with low initial rates of return, as long as the yield is expected to expand rapidly. Currently, the long-term treasury yield is about 2.75%. Compare this with EBIX's initial yield of 11.14%, which will expand at an annual rate of 8.6%, based on the average of the 3, 4 and 5 year historical eps growth rates. The company is the better choice, as the initial rate of return is close to or above the long term bond yield and is expanding.

CALCULATE THE FUTURE EPS: [No Pass/Fail]

EBIX currently has a book value of $11.24. It is safe to say that if EBIX can preserve its average rate of return on equity of 17.4% and continues to retain 96.78% of its earnings, it will be able to sustain an earnings growth rate of 16.9% and it will have a book value of $53.39 in ten years. If it can still earn 17.4% on equity in ten years, then expected EPS will be $9.30.

CALCULATE THE FUTURE STOCK PRICE BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now take the expected future EPS of $9.30 and multiply them by the lower of the 5 year average P/E ratio (12.2) or current P/E ratio (current P/E in this case), which is 9.0 and you get EBIX's projected future stock price of $83.73.

CALCULATE THE EXPECTED RATE OF RETURN BASED ON THE AVERAGE ROE METHOD: [No Pass/Fail]

Now add in the total expected dividend pool to be paid over the next ten years, which is $0.78. This gives you a total dollar amount of $84.51. These numbers indicate that one could expect to make a 20.2% average annual return on EBIX's stock at the present time. Buffett would consider this a great return.

CALCULATE THE EXPECTED FUTURE STOCK PRICE BASED ON AVERAGE EPS GROWTH: [No Pass/Fail]

If you take the EPS growth of 8.6%, based on the average of the 3, 4 and 5 year historical eps growth rates, you can project EPS in ten years to be $3.41. Now multiply EPS in 10 years by the lower of the 5 year average P/E ratio (12.2) or current P/E ratio (current P/E in this case), which is 9.0. This equals the future stock price of $30.65. Add in the total expected dividend pool of $0.78 to get a total dollar amount of $31.42.

CALCULATE THE EXPECTED RETURN USING THE AVERAGE EPS GROWTH METHOD: [No Pass/Fail]

Now you can figure out your expected return based on a current price of $13.37 and the future expected stock price, including the dividend pool, of $31.42. If you were to invest in EBIX at this time, you could expect a 8.92% average annual return o

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Member Avatar Aurum (50.49) Submitted: 7/8/2014 3:31:48 PM : Outperform Start Price: $13.35 EBIX Score: -5.46

Ebix is a very hated company, and possible for legitimate reasons. I believe the stock is oversold based on residual fears from past litigation that are resolved now.

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Member Avatar MrMighty (38.15) Submitted: 6/19/2014 2:29:20 PM : Outperform Start Price: $14.50 EBIX Score: -13.08

A Magic Formula pick that's getting over some rockiness, but long-term growth has been great.

Two thumbs up (if only that were possible)

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Member Avatar TerryFool (< 20) Submitted: 6/7/2014 8:17:38 AM : Outperform Start Price: $13.97 EBIX Score: -8.93

EBIX 5YR REV 20% 5YR EPS 12%

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Member Avatar TerryHoodSr (51.53) Submitted: 6/4/2014 11:59:36 AM : Outperform Start Price: $12.76 EBIX Score: -2.68

oversold, long term buy, 5YR REV 20% 5YR EPS 12%

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Member Avatar BuffettJunior1 (97.51) Submitted: 5/13/2014 9:36:55 PM : Underperform Start Price: $16.63 EBIX Score: +27.70

Shady accounting.

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Member Avatar PayMeDivs (27.75) Submitted: 3/23/2014 10:35:13 PM : Outperform Start Price: $16.77 EBIX Score: -29.99

Solid company

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Member Avatar poluh2k (49.66) Submitted: 2/21/2014 5:25:57 AM : Outperform Start Price: $16.52 EBIX Score: -30.19

p/e 10.4
short float 41% maybe see squeeze out soon

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Member Avatar jkeypour (< 20) Submitted: 2/19/2014 1:49:44 PM : Outperform Start Price: $16.46 EBIX Score: -30.13

Massively undervalued at the time of the Goldman buyout collapse. I think they'll probably approach their previous position around $20-22

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Member Avatar TheSheckyGreeneC (56.86) Submitted: 1/25/2014 7:07:45 PM : Outperform Start Price: $13.32 EBIX Score: -14.92

#34) On January 24, 2014 at 8:46 AM, ThisIsFor2053 (59.83) wrote:

EBIX

A 15-year-old Amish boy and his father were in a mall. They were amazed by almost everything they saw, but especially by two shiny, silver walls that could move apart and then slide back together again.

The boy asked, 'What is this Father?'

The father (never having seen an elevator) responded, 'Son, I have never seen anything like this in my life, I don't know what it is.'

While the boy and his father were watching with amazement, a fat old lady in a wheel chair moved up to the moving walls and pressed a button. The walls opened, and the lady rolled between them into a small room. The walls closed and the boy and his father watched the small numbers above the walls light up sequentially.

They continued to watch until it reached the last number… and then the numbers began to light in the reverse order. Finally the walls opened up again and a gorgeous 24-year-old blonde stepped out.

The father, not taking his eyes off the young woman, said quietly to his son.....

'Son, go get your Mother...'

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Member Avatar DJRRYAN (< 20) Submitted: 11/16/2013 2:04:47 PM : Outperform Start Price: $13.19 EBIX Score: -13.20

Turn key system for corporate and government healthcare exchanges. More corporations and governments will be moving to exchanges to drive increased competition making EBIX a winner for consumers and shareholders.

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Member Avatar Etirado (21.51) Submitted: 11/14/2013 12:04:30 PM : Outperform Start Price: $13.25 EBIX Score: -14.43

Screener

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Member Avatar Ricardo (30.01) Submitted: 10/22/2013 9:51:45 PM : Outperform Start Price: $12.47 EBIX Score: -11.08

Shorts wrong. None of fraud allegations prove out.

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Member Avatar SoulSearcher120 (< 20) Submitted: 10/5/2013 4:56:08 PM : Outperform Start Price: $10.75 EBIX Score: +0.17

Short Squeeze, Earning reports, change in Call's purchased, affordable medical care exchange activities, price is discounted well below true market value. EBIX has the lowest PE ratio's in comparison to its competitors as a result of shorting strategies and false misleading articles. 100 Million stock repurchase program. They are th e best value growth stock I can see at the moment.

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Member Avatar jkb31 (44.93) Submitted: 8/13/2013 2:57:40 PM : Outperform Start Price: $10.33 EBIX Score: +6.72

pure speculation

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Member Avatar rknapton (< 20) Submitted: 8/6/2013 7:30:28 PM : Outperform Start Price: $10.79 EBIX Score: +0.98

Long. Software for insurance industry. Revs up consistently, 1 analyst. 6x ttm PE.

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Member Avatar rwpunc (77.37) Submitted: 7/26/2013 3:20:41 AM : Outperform Start Price: $11.32 EBIX Score: -5.16

Ebix’s had a 11% earnings yield and 205.7% ROC a quarter ago with debt about the same as annual earnings. I like its growth model as it stands and support it wholeheartedly.

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Member Avatar Imhilion (47.46) Submitted: 7/25/2013 1:00:58 PM : Outperform Start Price: $11.42 EBIX Score: -5.77

WOW is right

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Member Avatar kevinwhite09 (< 20) Submitted: 7/17/2013 2:24:46 PM : Outperform Start Price: $11.46 EBIX Score: -6.63

Stock oversold following initial announcement of investigation. If allegations end up being overstated, then company has quality portfolio of products needed for insurance industry to fall back on.

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Member Avatar TrackMagicFormul (85.88) Submitted: 7/17/2013 12:43:20 PM : Outperform Start Price: $10.10 EBIX Score: +2.25

Investors should consider selling puts. You can achieve some very high annualized returns at strikes significantly below the current price. e.g.

Sep 13 $9.00 strike at 65¢ has 28% discount and 39% annualized return.

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