SWOT Analysis of Crawford and Company - Example

Finance and Accounting Table of Contents Table of Contents 2 3 Introduction 4 Strategic capabilities 5 Share price performance of Crawford and Company and other competitors 5 Market Capitalization 7 Price Earnings Ratio 8 Deals of Crawford and Company 9 Crawford and Company CRD-B 10 Performance of CRD-B 11 SWOT Analysis of Crawford and Company 13 Prediction of future share price 14 Technical Analysis 14 P/E ratio 16 Conclusion and Recommendation 17 Reference List 18 Abstract The report is about stock price evaluation of Crawford and Company, which a multinational organization providing claim management solutions to insurance and risk management industry on global scale. The evaluation of the stock price is based on the data collected from the annual report of the organization and various other authentic sources. The main aim of the report is to suggest the investors whether to buy, sell or retain the stocks of the organization. The evaluation has been done by comparing the performance of the stock of the company with other competitors. The analysis reveals that the share of Crawford and Company is not performing well and is price of the shares are much below that the other players in the insurance industry. Moreover, the earning for the investors is also low. The risk reward rating dismisses the expectation of the market for the future cash flow with the current cash flow. Finally the after conducting the technical analysis and looking at the P/E ratio, it has been suggested to the investors they might go with a purchasing decision. Furthermore, the company has been recommended to incorporate steps in order to make the shares more attractive. Introduction Crawford and Company is a multinational organization, headquartered in United States and provides claim management solutions to insurance and risk management industry on global scale. The report aims to perform an investigation on the performance of the stock of Crawford and Company and recommend whether to buy, sell or retain the stocks of the organization. In this context the report will focus on the stock price analysis of the company, compare the same with the major competitors operating in the industry and finally predict the future price based on, which the recommendations will be made. Crawford and Company Crawford and Company provides claim management solutions to insurance and risk management industry on global scale. It also provides services to self-insured entities in more than 70 countries. The company aims at offering claim services, consulting services and business process outsourcing for a range of product lines. These include casualty claim and property management techniques, compensation claims for the workers, medical claim management and administration of legal settlement. The company has employed around 8478 hard working employees who contribute to the development company. The company belongs to the financial sector and insurance brokers industry (Crawford and Company, 2013b). The company has earned revenue of $1,266.1 million as of 2012, experiencing a rise in revenue by 4.5%. The operating profit of the company has however increased by 42.8% in 2012 from 2011. The net profit is measured as $48.9 million in 2012, which has also increased by 7.7% from 2011 (Crawford and Company, 2013a). Strategic capabilities In order to attain the strategic objectives Crawford and Company focuses on their strategic capabilities by highlighting on their mission and vision statement. The company wants to establish itself as the premium company that provides administrative solutions and custom claims in each and every market they operate. For this they aim to act with integrity, honesty and responsibility, provide value added services to their customers, encouraging positive communication with the customers and the employees and recognising the value of the contribution made by the employees. They consider the employees as an integral part in achieving their strategic objectives. In this respect, they aim to provide safe and healthy working environment for them and a continuous improving and learning environment. The organization aims to provide profitable and long-term growth to the shareholders (Crawford & Company, 2013). Share price performance of Crawford and Company and other competitors The shares of the company are traded in New York Stock Exchange under the symbol of CRD-A and CRD-B. The annual report concentrates on the CRD-B shares, which have performed relatively as compared to the S&P 500 Index and S&P Property-Casualty Insurance Index during the years starting from 2010 to 2012. The performance of the company can be evaluated by drawing a comparison with the industry in which it operates (insurance broker). The following table 1 compares the share price of the company with other players of the industry and identifies the performance of the company (Yahoo! Inc., 2013a). The figure 1 given below compared the share price movement of Crawford and Company with its major competitors like Marsh & McLennan Companies, Inc., Jardine Lloyd Thompson Group Plc and Aon Plc on the basis of their historical prices tracked for four years starting from 2009 till 2012 (Yahoo! Inc., 2013b). The figure clearly shows that the share price of Crawford and company has been the lowest among all the competitors in the last four years. Moreover, it can be also seen that there was no significant rise in the price level; the shares were consistently performing at same level with insignificant rise or fall. The strongest performer among all the four players is JardineLloyd Thompson Group Plc with the highest stock price. The share price of this company has consistently increased over these four years from $376.71 in January 2009 to $766.83 in December 2012 whereas that of Crawford and company has decreased from $8.4 in January 2009 to $7.84 in December 2012. The other two players have also shown a rise in their stock price. Figure 1 Hence, the overall analysis of the stock price movement shows that the performance of the shares is not satisfactory. The shares of the company have not shown any significant rise, which might not attract the investors. Moreover, the performance of the share is such that it can be implied that in future the share will not perform well. Market Capitalization Market capitalisation indicates the total value of the shares that are issued by a publicly traded company. It is the measure of the total current replacement value of the organization. In simple words, it is the price that an individual needs to pay if he/she wants to buy the organization as a whole. Market capitalization is calculated by multiplying the total number of outstanding shares with the current market price. This implies that the market capitalization of an organization changes every day. Thus, in this case the market capitalization of Crawford and Company has been compared over the last five years. Figure 2: Market Capitalization of CRD B Source: (YCharts, 2013) The figure given above that is figure 2 shows that the market capitalization of Crawford and Company was highest in the year 2009 at $696.58 million, but after that it has fallen significantly and is presently at $493.75 million. For the purpose of investment the figure of market capitalization indicates the size of the company. The market capitalization figure signifies that Crawford and Company is a small cap firm. Investors often feel attracted to invest towards the small cap firms as they have lower valuation and have chances to move towards large cap. However, the risk attached with this type of investment is also high. This means risky asset can generate higher return compared to less risky-asset. The lower market capitalisation also indicates that the company has to increase its market value so that the investors are well aware of them. Price Earnings Ratio Table 1: Comparison between Crawford and Company with other industry competitors Company Price - Earnings ratio Price – Book Ratio Crawford and Company (CRD-B) 9.30 2.9 Main competitors in the Industry Marsh & McLennan Companies, Inc. 19.94 3.7 JardineLloyd Thompson Group PLC 2025.35 6.7 Aon plc 24.26 3.8 (Source: Yahoo! Inc., 2013e) The price earnings ratio (PE ratio) denotes the valuation of the shares or its performance in future. Price earnings ratio is of great importance as it compares the current price of the share with the latest earnings per share (EPS). A higher PE ratio indicates a greater amount of risk for the investors. In table 1, it can be seen that PE ratio of CRD B is 9.30, which is much lower as compared to the other companies in the same industry. This indicates that the organization is not risky from the investment point of view. However, investors are more interested in investing in those organizations that have a moderate PE ratio. The companies with higher PE ratio indicate the popularity of the stock and willingness of the investors to own them at their own risk. However, investors might like investing in the stock because of its low risk. The price to book ratio (PB ratio) is used to compare the market value of the stock with the book value. The table 3 given above has shown the comparison of the PB values of Crawford and Company with its major competitors. The PB value of the organization is 2.9, which are much lower than the competitors. The lower PB value signifies that the stock of the company is undervalued. This might also suggest that there might be some fundamental problem in the organization. Deals of Crawford and Company Crawford and Company has made the following deals in 2012-2013: Figure 3: Deal made by Crawford and Company (Source: Marketline, 2013) Figure 1 indicates the fact that the company has gone through only acquisition during 2012-2013. The company has acquired the major stakes of Lloyd Warwick International in March, 2013. (Marketline, 2013) Crawford and Company CRD-B CRD-B is observed to perform better, which can be suggested from the risk-reward rating is given figure 4: Figure 4: Risk reward Rating (Source: New Constructs, 2013) Figure 2 indicates that CRD-B has shown neutral performance with respect to risk. The upside potential of the stock is balanced with the downside risk and hence, the performance of the stock has been neutral. The figure highlights the five factors affecting the overall risk or reward performance of CRD-B. These provide insight to the profitability and valuation of company shares. Neutral EE denotes that although the economic Earning per Share (EPS) are negative, it still proceeds in the same direction just like, GAAP EPS. Reported Net assets are lowering the economic EPS and are not captured by the Reported EPS. The share does not possess any attractive or dangerous features so as to affect the profitability of the company positively or negatively. The figure indicates that the risk or reward rating system of the share dismisses the expectation of the market for the future cash flow with the current cash flow. Performance of CRD-B Six predictive variables of the stock are ranked along with the industry average to examine the performance of the CRD-B. The variables are ranked out of 100. The higher ranks indicate the positive influence of the stock. The valuation is done for October 2013. The company has the following evaluation and ranking: Table 2: Comparison of performance of CRD B with industry standard CRD -B Industry Sector 12 month return 93 54 57 5 years average annual return 45 59 57 EPS Growth 10 55 49 Sharpe ratio 48 59 57 P/S Ratio 84 56 57 M/B Ratio 37 32 34 (Source: ValuEngine Inc., 2013) From table 4, the following can be analysed: 1) The performance of the return of the stock for 12 months is portrayed in the 12 month return on a rank scale of 100. Higher ranks indicate the strong performance of the shares. The return rank of CRD-B is much higher than that of the industry average which indicates that the shares are performing well with respect to the industry. 2) The values shown in the above table shows higher rank of five years returns performance of CRD-B than the industry. This indicates that the shares are experiencing good valuation in the long term in comparison to the industry. 3) Earnings per share are the portion of the profit of the company that is allocated to each of the outstanding share of the common stock. This is used as an indicator for the profitability of the organization. Earnings per share when compared with the industry standard provide an idea regarding the earning power of the organization. Investors generally get attracted to the companies who have an increasing trend of EPS. The EPS of CRD- B is 10, which is much lower than the industry. This signifies that the organization is incapable of making much money for their shareholders. 4) The Sharpe ratio shows how much extra return the investor will be getting for the extra volatility that is experienced for holding the riskier asset. It is used to evaluate the portfolio. The Sharpe ratio gauges the risk return trade off of any stock. Higher the ratio better is the organization. The rank of CRD-B is slightly lower than that of the industry. This implies that the organization is not in a better position as compared to the industry standard. 5) The price-to-sales ratio is the measure used for valuing the stocks. A lower value of this makes the investors more attracted towards the investment. The above table 4 shows that as compared to the industry and the sector the value of this ratio for CRD-B is much higher. Thus, this signifies that the investors will be less attracted towards the stocks of this company. 6) The market-to-book value of the organization is a way of measuring the relative value of the organization compared to the market value. This value is of great importance to the investors, since it gives them an idea regarding the overvaluation or undervaluation of the stock. If this ratio is low then it is seen as a good investment opportunity for the investors. The M/B ratio of CRD B is much higher than of the industry. This implies that the assets of the company are overvalued and the company does not have good prospect. At the same time the earnings of the organization will not grow. SWOT Analysis of Crawford and Company Figure 5: SWOT Analysis Strength Weaknesses The company shows strong liquidity position as its current ratio is at 1.29 (Global Data, 2013). The organization has diversified their business. It operates through four main divisions like, EMEA/AP, Americas, Legal Settlement Administration and Broadspire (Thomson Reuters, 2013; Reuter, 2013). The performance of the stock is good. Return on equity is satisfactory Valuation level is reasonable. Net income has shown unimpressive growth Poor management of debt. Poor profit margin. The limited solvency and leverage position (The Street, 2012). Opportunities Threats Taking the shareholders into confidence by promoting fait outcome. Impact of demographic changes can lead to positive changes in the business. The company can expand their business in the emerging markets. The organization can gain cost competitive by redesigning the asset liability position and optimizing the capital structure. Various strategic programmes has been undertaken by the organization for escalating the growth Significant contribution in recovering the economy of US Shareholders confidence lower down due to regulation changes or failure in corporate governance. Operational risk Euro zone debt crisis and reputational risk can hamper the business operations. Changes in accounting standards and tax regulations can impact the business (Ernst & Young Global Limited, 2013). Intense competition in the industry exposed to the fluctuations in the foreign exchange rates No hedging activity is undertaken by the company. Source: (Author’s Creation) Prediction of future share price In order to forecast the future price of the shares of Crawford and Company, two types of methods are used. The first method deals with technical analysis and the second one is the P/E ratio. Technical Analysis Technical analysis is the technique used for predicting the future price movement of the stock based on the investigation of the past price movements. This provides the most likely movement of the price and uses charts to exhibit the price movement over time. The figure given below shows the performance of the share of Crawford and Company over the period starting from December, 2012 to November, 2013. The stock is seen to operate at a much lower price during the period of December, 2012 to mid of July, 2013. After that the stock price of the company was observed to rise consistently till end of October, 2013. After that it steeply fell to much lower price. Therefore, from the point of view of technical analysis it is good time to purchase the stock of Crawford and Company with the expectation that it will rise in future. There was positive news regarding the company coming into the market in November, 2013. Crawford and company announced that they won the Forrester Groundswell Award in the category of business-to-employee mobility. This award means a lot for the company from the business prospective since the award is given to those who energises their customers, unleashes their employees and transform their business (Thomson Reuters, 2013a). Apart from this, the organization has announced quarterly dividends for their shareholders. Crawford and Company has announced $0.04 dividend per share for their Class B Common Stock (Thomson Reuters, 2013b). This announcement can attract new investors to invest in the stock of the organization and at the same time will help in retaining the existing customers. Moreover, José Vicente Gomes da Silva has been appointed as the new country manager in Brazil and the company believes that this change will help the organization in driving their future growth and delivery of quality services for their Brazilian operation (Yahoo Finance, 2013).  This news is expected to drive the sentiments of the investors and might lead to increase in the stock price. Figure 6 Source: (Reuters, 2013) P/E ratio Price earnings ratio (P/E) is used to determine the stock price of the company whether it is underpriced or overpriced. The companies with the higher P/E ratio are having overpriced stock prices and they are not good buys in the long term. P/E ratio = Market Value per share/ Earnings per share (EPS) Here, Market value of the share = 3.54 (Morningstar Research Inc., 2013) EPS = 0.16 (Morningstar Research Inc., 2013) Both the Market value of the share and the EPS are taken from the data available during the period 2012-2013. Therefore, the P/E ratio of the stock = 3.54/0.16 = 22.125. From the above calculation it can be noticed that the P/E ratio is high. Thus, it indicates that the value of the stock is overpriced and it is not suitable for purchasing the same in the long term. Figure 7: Future stock prediction (Source: Nasdaq, 2013) According to NASDAQ, the estimated report of earnings as predicted by them for the next quarter will be $0.24 which was $0.33 in the last year’s same quarter. Now, keeping the market value of the share same, if the EPS is taken to be $0.24 (data provided by NASDAQ) then the P/E Ratio will be changing. Therefore the P/E ratio will be = 3.54/0.24 = 14.75 Thus, it can be noticed that the stock value is underpriced and hence can be recommended for purchase. Conclusion and Recommendation The recommendation of purchasing the shares is made after the evaluation of the future share price. Neutral performance is observed for the share of the company. Although the risk-reward value of the share is notable, the overall performance of the share with respect to the sector is not good. The share price of CRD-B needs to be improved which will result in increased trade of the shares, thereby attracting more investors to the company. Reference List Crawford & Company, 2013. Crawford & Company 2013 Strategic Plan [pdf] Available at [Accessed 22 November 2013]. Crawford and Company, 2013a. About Us. [online] Available at: < http://www.crawfordandcompany.com/about-us.aspx > [Accessed 11 November 2013]. Crawford and Company, 2013b.Property Claims. [online] Available at: < http://www.crawfordandcompany.com/services/property-services.aspx > [Accessed 11 November 2013]. Crawford and Company, 2013c. Financial Information. [online] Available at: < http://www.crawfordandcompany.com/ar/2012/financial-information.html > [Accessed 11 November 2013]. Ernst & Young Global Limited, 2013. Top 10 risks and opportunities for insurance in 2013 and beyond [online] Available at < http://www.ey.com/GL/en/Industries/Financial-Services/Insurance/Business-Pulse--top-10-risks-and-opportunities-2013-15> [Accessed 22 November 2013]. Global Data, 2013. Crawford and company: Financial Analysis Review. [online] Available at: [Accessed 11 November 2013]. Jennings, R., 2006.Financial accounting. Singapore: British Library Cataloguing-in- Publication Data. Marketline, 2013.Crawford and Company CRD-B. [online] Available at: [Accessed 11 November 2013]. Morningstar Research Inc., 2013. Financials. [online] Available at: < http://quote.morningstar.ca/Quicktakes/stock/keyratios.aspx?t=CRD.B®ion=USA&culture=en-CA&ops=clear > [Accessed 11 November 2013]. Nasdaq, 2013. CRD/B Earnings Date. [online] Available at: < http://www.nasdaq.com/earnings/report/crd-b > [Accessed 11 November 2013]. New Constructs, 2013.Crawford and Company CRD-B. [online] Available at: [Accessed 11 November 2013]. Reuter, 2013.Crawford and Company Increases Dividend. [online] Available at: [Accessed 11 November 2013]. Reuters, 2013. Crawford & Co (CRDb.N) [online] Available at < http://www.reuters.com/finance/stocks/chart?symbol=CRDb.N> [Accessed 22 November 2013]. The Street, 2012. Crawford & Company Stock Upgraded (CRD.A) [online] Available at < http://www.thestreet.com/story/11537583/1/crawford-company-stock-upgraded-crda.html> [accessed 22 November 2013]. Thomson Reuters, 2013.Thomson Reuters Streetevents : Edited Transcript. [online] Available at: [Accessed 11 November 2013]. ValuEngine Inc, 2013. Detailed Stock Valuation Report. [online] Available at: < support@ValuEngine.com> [Accessed 11 November 2013]. Yahoo! Inc., 2013a.Industry: Insurance Broker. [online] Available at: [Accessed 11 November 2013]. Yahoo! Inc., 2013b.Historical Prices of Crawford and Company CRD-B. [online] Available at: [Accessed 11 November 2013]. Yahoo! Inc., 2013c.Historical Prices of MMC. [online] Available at: [Accessed 11 November 2013]. Yahoo! Inc., 2013d.Key Statistics. [online] Available at: [Accessed 11 November 2013]. Yahoo! Inc., 2013e. Industry. [online] Available at: < http://finance.yahoo.com/q/in?s=CRD-B+Industry > [Accessed 11 November 2013]. YCharts, 2013. Crawford & Company Market Cap:493.75M for Nov. 20, 2013 [online] Available at < http://ycharts.com/companies/CRD.B/market_cap> [Accessed 21 November 2013]. Yahoo Finance, 2013. Crawford Names José Vicente Gomes da Silva as Country Manager for Brazil [online] Available at < http://finance.yahoo.com/news/crawford-company-crawford-names-jos-191300177.html> [Accessed 25 November 2013]. Thomson Reuters, 2013b. Crawford & Company Board Declares Quarterly Dividends [online] Available at < http://in.reuters.com/article/2013/11/04/idUSnHUGdmwp+70+ONE20131104> [Accessed 25 November 2013]. Thomson Reuters, 2013a. CRAWFORD & COMPANY WINS 2013 FORRESTER GROUNDSWELL AWARD: Receives award in the category of Business-to-Employee Mobility for Crawford CAT Connection [online] Available at < http://in.reuters.com/article/2013/11/11/idUSnHUGdnkn+70+ONE20131111> [Accessed 25 November 2013]. Read More