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 Stifel Financial Corp (SF) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Stifel Financial Corp. is a financial holding company. Its principal subsidiary is Stifel, Nicolaus & Company, Incorporated, a retail and institutional wealth management and investment banking firm. Its principal activities are private client services, including securities transaction and financial planning services; institutional equity and fixed income sales, trading, research and municipal finance; investment banking services, including mergers and acquisitions, public offerings and private placements, and retail and commercial banking, including personal and commercial lending programs. It operates through three segments. The Global Wealth Management segment consists of the Private Client Group and Stifel Bank businesses. The Institutional Group segment includes research, equity and fixed income institutional sales and trading, investment banking, public finance and syndicate. The Other segment includes interest income from stock borrow activities and interest income.
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||$3,262,999,894||Pass|
|2. Earnings Stability||Positive EPS for 10 years prior||Pass|
|3. Dividend Record||Dividend Payments for 10 years prior||Fail|
|4. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||28.76%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||30.52||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.45||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||Fail|
|3. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||2.76%|
|MG Value based on 3% Growth||$23.93|
|MG Value based on 0% Growth||$14.03|
|Market Implied Growth Rate||11.01%|
|% of Intrinsic Value||217.71%|
Stifel Financial Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.39 in 2012 to an estimated $1.65 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.01% 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 Stifel Financial Corp revealed the company was trading above its Graham Number of $33.51. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 30.52, which was above the industry average of 21.33.
Stifel Financial Corp scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||0|
|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||$1,597,480,000|
|Shares Outstanding (Diluted Average)||77,544,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.30|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.65|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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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.