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 Stocks for Using A Benjamin Graham Value Investing Strategy – December 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 City Holding Company (CHCO) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): City Holding Company is a financial holding company. The Company conducts its principal activities through its subsidiary, City National Bank of West Virginia (City National). City National provides banking, trust and investment management and other financial solutions through its network of approximately 85 banking offices located in the states of West Virginia, Virginia, eastern Kentucky and southeastern Ohio. It offers various products and services, including commercial banking, consumer banking, mortgage banking, and wealth management and trust services. It offers a range of commercial banking services to corporations and other business customers. Loans are provided for a variety of business purposes, including financing for commercial and industrial projects, income producing commercial real estate, owner-occupied real estate and construction and land development. City National provides merchant credit card services through an agreement with a third party vendor.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation. In addition, here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$979,686,851||Fail|
|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||38.09%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||20.19||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.29||Pass|
|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
|MG Growth Estimate||4.50%|
|MG Value based on 3% Growth||$48.04|
|MG Value based on 0% Growth||$28.16|
|Market Implied Growth Rate||5.84%|
|% of Intrinsic Value||115.42%|
City Holding Company is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, high PEmg ratio. The Enterprising Investor has no initial 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 Overvalued after growing its EPSmg (normalized earnings) from $2.55 in 2012 to an estimated $3.31 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.84% 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 below the price.
At the time of valuation, further research into City Holding Company revealed the company was trading above its Graham Number of $46.73. The company pays a dividend of $1.7 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.19, which was above the industry average of 13.43.
City Holding Company receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Long-Term Debt & Capital Lease Obligation||$16,495,000|
|Shares Outstanding (Diluted Average)||14,910,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.35|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$3.31|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
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.