Banks Stocks

BB&T Corporation Valuation – May 2016 $BBT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  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 or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  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 stock analysis showing a specific look at how BB&T Corporation (BBT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BB&T Corporation is a financial holding company. The Company conducts its business operations primarily through its bank subsidiary, Branch Banking and Trust Company, and other nonbank subsidiaries. Its segments include Community Banking, which offers a range of loan and deposit products and other financial services; Residential Mortgage Banking, which retains and services mortgage loans originated by Community Banking, as well as those purchased from various correspondent originators; Dealer Financial Services, which originate loans to consumers on a prime and nonprime basis for the purchase of automobiles; Specialized Lending, which consists of business units and subsidiaries that provide finance products to consumers and businesses; Insurance Services, which provide property and casualty, employee benefits and life insurance to businesses and individuals; Financial Services, which provide asset management, corporate trust services and others, and Other, Treasury and Corporate

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BBT – May 2016

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 $27,768,382,097 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
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 12.36% Fail
5. Moderate PEmg Ratio PEmg < 20 13.21 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.95 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

BBT value Chart May 2016

EPSmg $2.56
MG Growth Estimate 4.62%
MG Value $45.37
Opinion Undervalued
MG Grade A-
MG Value based on 3% Growth $37.07
MG Value based on 0% Growth $21.73
Market Implied Growth Rate 2.36%
Current Price $33.77
% of Intrinsic Value 74.43%

BB&T Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years. The Enterprising Investor has no concerns.  As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.95 in 2012 to an estimated $2.56 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.36% 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.

BB&T Corporation fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

BBT Charts May 2016

Graham Number $42.98
PEmg 13.21
PB Ratio 0.95
Current Dividend $1.08
Dividend Yield 3.20%
Number of Consecutive Years of Dividend Growth 6

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Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-term Debt $22,823,000,000
Total Assets $212,405,000,000
Intangible Assets $9,215,000,000
Total Liabilities $184,205,000,000
Shares Outstanding (Diluted Average) 790,176,000

Earnings Per Share History

Next Fiscal Year Estimate $2.56
12/1/2015 $2.56
12/1/2014 $2.75
12/1/2013 $2.19
12/1/2012 $2.70
12/1/2011 $1.83
12/1/2010 $1.16
12/1/2009 $1.15
12/1/2008 $2.71
12/1/2007 $3.14
12/1/2006 $2.81
12/1/2005 $3.00
12/1/2004 $2.80
12/1/2003 $2.07
12/1/2002 $2.72
12/1/2001 $2.12
12/1/2000 $1.55
12/1/1999 $1.83
12/1/1998 $1.71
12/1/1997 $1.30
12/1/1996 $1.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.56
12/1/2015 $2.51
12/1/2014 $2.36
12/1/2013 $2.05
12/1/2012 $1.95
12/1/2011 $1.72
12/1/2010 $1.84
12/1/2009 $2.31
12/1/2008 $2.89
12/1/2007 $2.91
12/1/2006 $2.75
12/1/2005 $2.66
12/1/2004 $2.42
12/1/2003 $2.17
12/1/2002 $2.14
12/1/2001 $1.80
12/1/2000 $1.60

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks For Value Investors This Week – 11/21/15
BB&T Corporation Valuation – November 2015 Update $BBT
The Best Companies of the Banking Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
BB&T Corporation Analysis – August 2015 Update $BBT

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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.  See my current holdings here.  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.  Please be sure to review our detailed disclaimer.

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