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 – January 2017. 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 Columbia Banking System Inc (COLB) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Columbia Banking System, Inc. is a bank holding company of Columbia State Bank (the Bank) and West Coast Trust Company, Inc. The Company provides a range of banking services to small and medium-sized businesses, professionals and individuals throughout Washington, Oregon and Idaho. The Bank provides a range of financial services through approximately 150 branch locations in Washington, Oregon and Idaho. The Company’s products and services include personal banking, business banking and wealth management. It offers its personal banking customers a range of account products, including noninterest and interest-bearing checking, savings, money market and certificate of deposit accounts. The Company offers its business banking customers with a range of checking, savings, interest bearing money market and certificate of deposit accounts. It provides individual and business retirement solutions, insurance solutions, wealth management and financial planning.
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||$2,288,910,173||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||725.00%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||35.91||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.82||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||Fail|
|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||1.21%|
|MG Value based on 3% Growth||$16.07|
|MG Value based on 0% Growth||$9.42|
|Market Implied Growth Rate||13.71%|
|% of Intrinsic Value||328.90%|
Columbia Banking System Inc 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 stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years. 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 $1.03 in 2013 to an estimated $1.11 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.71% 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 Columbia Banking System Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.77 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 35.91, which was above the industry average of 21.43.
Columbia Banking System Inc 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||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2016|
|Long-Term Debt & Capital Lease Obligation||$6,493,000|
|Shares Outstanding (Diluted Average)||57,229,000|
Earnings Per Share History
|Next Fiscal Year Estimate|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.11|
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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.