Financial Services Stocks

Ameriprise Financial Inc. Analysis – August 2015 Update $AMP

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Ameriprise Financial Inc. (AMP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Ameriprise Financial, Inc. (Ameriprise Financial) is a holding company primarily engaged in business through its subsidiaries. Ameriprise Financial is a diversified financial services company that offers financial solutions to individual and institutional clients. The Company operates in four segments: Advice & Wealth Management, Asset Management, Annuities and Protection. The Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage services, primarily to retail clients through advisors. The Asset Management segment provides investment advice and investment products to retail, high net worth and institutional clients on a global scale through Columbia Management and Threadneedle. The Annuities segment provides variable and fixed annuity products of RiverSource Life companies to individual clients. The Protection segment offers a variety of products to address the protection and risk management needs of retail clients.
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Downloadable PDF version of this valuation:

ModernGraham Valuation of AMP – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 7.45
MG Growth Estimate 15.00%
MG Value $286.80
Opinion Undervalued
MG Value based on 3% Growth $108.02
MG Value based on 0% Growth $63.32
Market Implied Growth Rate 3.92%
Current Price $121.66
% of Intrinsic Value 42.42%

Ameriprise Financial Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, while the Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.42 in 2011 to an estimated $7.45 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.92% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Ameriprise Financial Inc. (AMP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AMP charts August 2015

PEmg 16.33
PB Ratio 2.88
Dividend Yield 1.98%
Number of Consecutive Years of Dividend Growth 11

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Long-Term Debt $10,408,000,000
Total Assets $148,806,000,000
Intangible Assets $0
Total Liabilities $140,931,000,000
Shares Outstanding (Diluted Average) 186,400,000

Earnings Per Share History

Next Fiscal Year Estimate $9.09
Dec14 $8.30
Dec13 $6.44
Dec12 $4.62
Dec11 $4.53
Dec10 $4.18
Dec09 $2.95
Dec08 -$0.16
Dec07 $3.39
Dec06 $2.54
Dec05 $2.32
Dec04 $3.22
Dec03 $2.95

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.45
Dec14 $6.29
Dec13 $5.04
Dec12 $3.97
Dec11 $3.42
Dec10 $2.77
Dec09 $2.11
Dec08 $1.88
Dec07 $2.90
Dec06 $2.50
Dec05 $2.22
Dec04 $1.86
Dec03 $0.98

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Financial Services Industry – May 2015
30 Companies in the Spotlight This Week – 5/23/15
Ameriprise Financial Inc. Quarterly Valuation – May 2015 $AMP
40 Companies in the Spotlight This Week – 2/21/15
Ameriprise Financial Inc. Quarterly Valuation – February 2015 $AMP

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McGraw Hill Financial Inc. Analysis – 2015 Update $MHFI
Bank of New York Mellon Analysis – July 2015 Update $BK
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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