ERIE

We rate ERIE INDEMNITY CO (ERIE) as a Reduce with a composite score of 48.1/100 at a current price of $256.88. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (87th percentile) and value (61th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (13th percentile) and investment (45th percentile) tempers our overall conviction. We assign a Narrow Moat rating (57/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

ERIE INDEMNITY CO holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 48.1/100 places it at rank #2309 in our full 7,333-stock universe. With a $14.6B market capitalization, ERIE INDEMNITY CO operates at meaningful scale within the Finance, Insurance, And Real Estate sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 8%, though momentum at the 13th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 100% (+23.5pp vs sector) narrow to operating margins of 18% (+0.9pp vs sector) and net margins of 15.9%, yielding a gross-to-net conversion rate of 16%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $256.88, ERIE INDEMNITY CO is trading near fair value based on current fundamentals. Our value factor score of 61/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 21.8x (a 82% premium to the sector median of 11.9x), EV/EBITDA of 19.3x (at a premium), P/B of 6.2x, P/S of 3.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to ERIE INDEMNITY CO. The company exhibits strong financial stability with a beta of 0.30, conservative leverage (44% D/E), and a stability factor in the 47th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.30 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 47th percentile and quality factor at the 87th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 100% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate ERIE INDEMNITY CO's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 28.4%, disciplined leverage (44% D/E), a 1.70% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — ERIE INDEMNITY CO meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 1.70% dividend yield, and the combination of 19.7% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, ERIE INDEMNITY CO receives a Reduce rating with a composite score of 48.1/100 (rank #2309 of 7,333). Our quantitative framework assigns a Narrow Moat (57/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 51/100.

Our analysis does not support a constructive view on ERIE INDEMNITY CO at this time. The combination of the current quantitative profile, low uncertainty, and exemplary capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.