Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI

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 – March 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 Texas Capital Bancshares Inc (TCBI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Texas Capital Bancshares, Inc. is a bank holding and a financial holding company. The Company is the parent of Texas Capital Bank, National Association (the Bank). It offers a range of loan, deposit account and other financial products and services to its customers. It offers a range of products and services for its business customers, including commercial loans for general corporate purposes, including financing for working capital, internal growth, acquisitions and financing for business insurance premiums; medium- and long-term tax-exempt loans for municipalities and other governmental and tax-exempt entities; wealth management and trust services, and letters of credit. It also provides banking services for its individual customers, including personal wealth management and trust services; certificates of deposit; interest-bearing and non-interest-bearing checking accounts; traditional money market and savings accounts; loans, both secured and unsecured, and Internet banking.

TCBI Chart

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ModernGraham Valuation of TCBI – March 2017

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 $3,981,969,488 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 304.13% Pass
5. Moderate PEmg Ratio PEmg < 20 24.78 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.86 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

EPSmg $3.23
MG Growth Estimate 6.32%
MG Value $68.27
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $46.84
MG Value based on 0% Growth $27.46
Market Implied Growth Rate 8.14%
Current Price $80.05
% of Intrinsic Value 117.25%

Texas Capital Bancshares Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the 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 $2.27 in 2013 to an estimated $3.23 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.14% 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 Texas Capital Bancshares Inc revealed the company was trading above its Graham Number of $56.38. The company pays a dividend of $0.81 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 24.78, which was above the industry average of 20.84.

Texas Capital Bancshares Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $56.38
PEmg 24.78
PB Ratio 1.86
Dividend Yield 1.01%
TTM Dividend $0.81
Number of Consecutive Years of Dividend Growth 1

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $2,394,450,000
Total Assets $21,697,134,000
Intangible Assets $48,048,000
Total Liabilities $19,687,577,000
Shares Outstanding (Diluted Average) 46,766,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.76
Dec2016 $3.11
Dec2015 $2.91
Dec2014 $2.88
Dec2013 $2.72
Dec2012 $3.00
Dec2011 $1.98
Dec2010 $1.00
Dec2009 $0.55
Dec2008 $0.87
Dec2007 $1.10
Dec2006 $1.09
Dec2005 $1.02
Dec2004 $0.77
Dec2003 $0.60
Dec2002 $0.32
Dec2001 $0.30
Dec2000 -$1.89
Dec1999 -$1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.23
Dec2016 $2.95
Dec2015 $2.81
Dec2014 $2.62
Dec2013 $2.27
Dec2012 $1.86
Dec2011 $1.23
Dec2010 $0.87
Dec2009 $0.85
Dec2008 $0.99
Dec2007 $1.00
Dec2006 $0.89
Dec2005 $0.73
Dec2004 $0.39
Dec2003 $0.01
Dec2002 -$0.36
Dec2001 -$0.65

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

TCF Financial Corp Valuation – Initial Coverage $TCB
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CVB Financial Corp Valuation – Initial Coverage $CVBF
Customers Bancorp Inc Valuation – Initial Coverage $CUBI
Comerica Inc Valuation – March 2017 $CMA
Sterling Bancorp Valuation – Initial Coverage $STL
S&T Bancorp Inc Valuation – Initial Coverage $STBA
Central Pacific Financial Corp Valuation – Initial Coverage $CPF
Synovus Financial Corp Valuation – Initial Coverage $SNV
U.S. Bancorp Valuation – February 2017 $USB

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.

TCF Financial Corp Valuation – Initial Coverage $TCB

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 – March 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 TCF Financial Corp (TCB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): TCF Financial Corporation (TCF) is a bank holding company. The Company’s principal subsidiary is TCF National Bank (TCF Bank). The Company operates in three segments: Consumer Banking, Wholesale Banking and Enterprise Services. Consumer Banking comprises all of the Company’s consumer-facing businesses. The Consumer Banking segment includes retail banking, consumer real estate and auto finance. Wholesale Banking comprises commercial real estate and business lending, leasing and equipment finance and inventory finance. TCF’s consumer banking strategy is primarily to generate deposits to use for funding high credit quality secured loans and leases. Enterprise Services comprises corporate treasury, corporate functions and the Holding Company. As of December 31, 2016, the Company’s total securities available for sale were $1.4 billion. As of December 31, 2016, the Company’s total loans were $17.8 billion. As of December 31, 2016, the Company’s total deposits were $17.2 billion.

TCB Chart

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ModernGraham Valuation of TCB – March 2017

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 $2,746,821,864 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 27.76% Fail
5. Moderate PEmg Ratio PEmg < 20 14.76 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 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

EPSmg $1.08
MG Growth Estimate 15.00%
MG Value $41.61
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $15.67
MG Value based on 0% Growth $9.19
Market Implied Growth Rate 3.13%
Current Price $15.95
% of Intrinsic Value 38.34%

TCF Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.23 in 2013 to an estimated $1.08 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.13% 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.

At the time of valuation, further research into TCF Financial Corporation revealed the company was trading below its Graham Number of $18.02. The company pays a dividend of $0.3 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 14.76, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

TCF Financial Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $18.02
PEmg 14.76
PB Ratio 1.10
Dividend Yield 1.88%
TTM Dividend $0.30
Number of Consecutive Years of Dividend Growth 3

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $1,073,181,000
Total Assets $21,441,326,000
Intangible Assets $227,348,000
Total Liabilities $19,013,843,000
Shares Outstanding (Diluted Average) 167,807,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.14
Dec2016 $1.15
Dec2015 $1.07
Dec2014 $0.94
Dec2013 $0.82
Dec2012 -$1.37
Dec2011 $0.71
Dec2010 $1.08
Dec2009 $0.54
Dec2008 $1.01
Dec2007 $2.12
Dec2006 $1.90
Dec2005 $2.00
Dec2004 $1.86
Dec2003 $1.53
Dec2002 $1.58
Dec2001 $1.35
Dec2000 $1.18
Dec1999 $1.00
Dec1998 $0.88
Dec1997 $0.85

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.08
Dec2016 $0.87
Dec2015 $0.64
Dec2014 $0.42
Dec2013 $0.23
Dec2012 $0.09
Dec2011 $0.91
Dec2010 $1.12
Dec2009 $1.26
Dec2008 $1.67
Dec2007 $1.96
Dec2006 $1.85
Dec2005 $1.77
Dec2004 $1.60
Dec2003 $1.42
Dec2002 $1.31
Dec2001 $1.14

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Canadian Western Bank Valuation – Initial Coverage $TSE:CWB
CVB Financial Corp Valuation – Initial Coverage $CVBF
Customers Bancorp Inc Valuation – Initial Coverage $CUBI
Comerica Inc Valuation – March 2017 $CMA
Sterling Bancorp Valuation – Initial Coverage $STL
S&T Bancorp Inc Valuation – Initial Coverage $STBA
Central Pacific Financial Corp Valuation – Initial Coverage $CPF
Synovus Financial Corp Valuation – Initial Coverage $SNV
U.S. Bancorp Valuation – February 2017 $USB
Columbia Banking System Inc Valuation – Initial Coverage $COLB

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.

Zions Bancorp Valuation – January 2019 $ZION

Company Profile (excerpt from Reuters): Zions Bancorporation, incorporated on April 25, 1955, is a financial holding company. The Company conducts its banking operations through separately managed and branded segments, including Zions Bank, Amegy Bank, California Bank & Trust, National Bank of Arizona, Nevada State Bank (NSB), Vectra Bank Colorado, The Commerce Bank of Washington (TCBW) and Other. The Company provides a range of banking and related services, primarily in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ZION – January 2019

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 $8,880,873,295 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 -173.64% Fail
5. Moderate PEmg Ratio PEmg < 20 17.29 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.26 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

EPSmg $2.67
MG Growth Estimate 15.00%
MG Value $102.92
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $38.76
MG Value based on 0% Growth $22.72
Market Implied Growth Rate 4.39%
Current Price $46.21
% of Intrinsic Value 44.90%

Zions Bancorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.12 in 2014 to an estimated $2.67 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.39% 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.

At the time of valuation, further research into Zions Bancorp revealed the company was trading below its Graham Number of $56.43. The company pays a dividend of $0.44 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 17.29, which was above the industry average of 14.65.

Zions Bancorp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Graham Number $56.43
PEmg 17.29
PB Ratio 1.26
Dividend Yield 0.95%
TTM Dividend $0.44
Number of Consecutive Years of Dividend Growth 5

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $879,000,000
Total Assets $66,731,000,000
Intangible Assets $1,015,000,000
Total Liabilities $59,178,000,000
Shares Outstanding (Diluted Average) 205,765,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.93
Dec2017 $2.60
Dec2016 $1.99
Dec2015 $1.20
Dec2014 $1.68
Dec2013 $1.58
Dec2012 $0.97
Dec2011 $0.83
Dec2010 -$2.48
Dec2009 -$9.92
Dec2008 -$2.68
Dec2007 $4.42
Dec2006 $5.36
Dec2005 $5.16
Dec2004 $4.47
Dec2003 $3.72
Dec2002 $2.78
Dec2001 $3.07
Dec2000 $1.86
Dec1999 $2.26
Dec1998 $1.75

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.67
Dec2017 $1.97
Dec2016 $1.59
Dec2015 $1.35
Dec2014 $1.12
Dec2013 -$0.04
Dec2012 -$1.45
Dec2011 -$2.43
Dec2010 -$3.06
Dec2009 -$2.08
Dec2008 $2.34
Dec2007 $4.78
Dec2006 $4.74
Dec2005 $4.23
Dec2004 $3.57
Dec2003 $2.99
Dec2002 $2.54

Recommended Reading:

Other ModernGraham posts about the company

Zions Bancorp Valuation – June 2016 $ZION
40 Companies in the Spotlight This Week – 2/21/15
Zions Bancorporation Annual Valuation – 2015 $ZION
14 Companies in the Spotlight This Week – 2/15/14
Zions Bancorporation (ZION) Annual Valuation

Other ModernGraham posts about related companies

Regions Financial Corp Valuation – January 2019 $RF
Huntington Bancshares Inc Valuation – January 2019 $HBAN
PNC Financial Services Group Inc Valuation – January 2019 $PNC
KeyCorp Valuation – January 2019 $KEY
Citigroup Inc Valuation – January 2019 $C
People’s United Financial Inc Valuation – January 2019 $PBCT
JPMorgan Chase & Co Valuation – November 2018 $JPM
CVB Financial Corp Valuation – September 2018 $CVBF
Customers Bancorp Inc Valuation – September 2018 $CUBI
Sterling Bancorp Valuation – August 2018 $STL

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.

Zions Bancorp Valuation – March 2018 $ZION

Company Profile (excerpt from Reuters): Zions Bancorporation, incorporated on April 25, 1955, is a financial holding company. The Company conducts its banking operations through separately managed and branded segments, including Zions Bank, Amegy Bank, California Bank & Trust, National Bank of Arizona, Nevada State Bank (NSB), Vectra Bank Colorado, The Commerce Bank of Washington (TCBW) and Other. The Company provides a range of banking and related services, primarily in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming.

ZION Chart

ZION data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ZION – March 2018

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 $11,089,770,093 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 -168.19% Fail
5. Moderate PEmg Ratio PEmg < 20 22.54 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.52 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

EPSmg $2.46
MG Growth Estimate 15.00%
MG Value $94.84
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $35.72
MG Value based on 0% Growth $20.94
Market Implied Growth Rate 7.02%
Current Price $55.52
% of Intrinsic Value 58.54%

Zions Bancorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the 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 Undervalued after growing its EPSmg (normalized earnings) from $1.12 in 2014 to an estimated $2.46 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.02% 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.

At the time of valuation, further research into Zions Bancorp revealed the company was trading above its Graham Number of $51.71. The company pays a dividend of $0.44 per share, for a yield of 0.8% Its PEmg (price over earnings per share – ModernGraham) was 22.54, which was below the industry average of 24.17, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Zions Bancorp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $51.71
PEmg 22.54
PB Ratio 1.52
Dividend Yield 0.79%
TTM Dividend $0.44
Number of Consecutive Years of Dividend Growth 5

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $383,000,000
Total Assets $66,288,000,000
Intangible Assets $1,016,000,000
Total Liabilities $58,609,000,000
Shares Outstanding (Diluted Average) 210,514,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.30
Dec2017 $2.60
Dec2016 $1.99
Dec2015 $1.20
Dec2014 $1.68
Dec2013 $1.58
Dec2012 $0.97
Dec2011 $0.83
Dec2010 -$2.48
Dec2009 -$9.92
Dec2008 -$2.68
Dec2007 $4.42
Dec2006 $5.36
Dec2005 $5.16
Dec2004 $4.47
Dec2003 $3.72
Dec2002 $2.78
Dec2001 $3.07
Dec2000 $1.86
Dec1999 $2.26
Dec1998 $1.75

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.46
Dec2017 $1.97
Dec2016 $1.59
Dec2015 $1.35
Dec2014 $1.12
Dec2013 -$0.04
Dec2012 -$1.45
Dec2011 -$2.43
Dec2010 -$3.06
Dec2009 -$2.08
Dec2008 $2.34
Dec2007 $4.78
Dec2006 $4.74
Dec2005 $4.23
Dec2004 $3.57
Dec2003 $2.99
Dec2002 $2.54

Recommended Reading:

Other ModernGraham posts about the company

Zions Bancorp Valuation – June 2016 $ZION
40 Companies in the Spotlight This Week – 2/21/15
Zions Bancorporation Annual Valuation – 2015 $ZION
14 Companies in the Spotlight This Week – 2/15/14
Zions Bancorporation (ZION) Annual Valuation

Other ModernGraham posts about related companies

PNC Financial Services Group Inc Valuation – March 2018 $PNC
KeyCorp Valuation – March 2018 $KEY
Canadian Western Bank Valuation – March 2018 $TSE-CWB
Simmons First National Corp Valuation – March 2018 $SFNC
Citigroup Inc Valuation – March 2018 $C
People’s United Financial Inc Valuation – March 2018 $PBCT
JPMorgan Chase & Co Valuation – February 2018 $JPM
Opus Bank Valuation – Initial Coverage $OPB
Wells Fargo & Co Valuation – August 2017 $WFC
Old National Bancorp Valuation – Initial Coverage $ONB

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.

Citigroup Inc Valuation – March 2018 $C

Company Profile (obtained from Marketwatch): Citigroup, Inc. is a global financial services holding company, which engages in the provision of a range of financial products and services including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services, and wealth management. It operates through the Citicorp and Citi Holdings segments. The Citicorp segment consists of the company’s Global Consumer Banking and Institutional Clients Group businesses; as well as corporate and other functions. The Citi Holdings segment comprises of Citigroup’s other businesses and portfolios of assets. The company was founded on October 8, 1998 and is headquartered in New York, NY.

C Chart

C data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of C – March 2018

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 $194,810,100,807 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
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 -1024.10% Fail
5. Moderate PEmg Ratio PEmg < 20 24.62 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.96 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.99
MG Growth Estimate -0.51%
MG Value $22.37
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $43.39
MG Value based on 0% Growth $25.44
Market Implied Growth Rate 8.06%
Current Price $73.68
% of Intrinsic Value 329.42%

Citigroup 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 or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth 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 seeing its EPSmg (normalized earnings) decline from $3.1 in 2014 to an estimated $2.99 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.06% 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 Citigroup Inc revealed the company was trading below its Graham Number of $97.07. The company pays a dividend of $0.96 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 24.62, which was above the industry average of 20.84.

Citigroup Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $97.07
PEmg 24.62
PB Ratio 0.96
Dividend Yield 1.30%
TTM Dividend $0.96
Number of Consecutive Years of Dividend Growth 3

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $236,709,000,000
Total Assets $1,842,465,000,000
Intangible Assets $27,402,000,000
Total Liabilities $1,641,725,000,000
Shares Outstanding (Diluted Average) 2,606,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.93
Dec2017 -$2.98
Dec2016 $4.72
Dec2015 $5.40
Dec2014 $2.20
Dec2013 $4.34
Dec2012 $2.44
Dec2011 $3.63
Dec2010 $3.54
Dec2009 -$8.00
Dec2008 -$56.30
Dec2007 $7.20
Dec2006 $43.10
Dec2005 $47.50
Dec2004 $32.60
Dec2003 $34.20
Dec2002 $29.40
Dec2001 $27.20
Dec2000 $26.20
Dec1999 $21.70
Dec1998 $13.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.99
Dec2017 $1.93
Dec2016 $4.19
Dec2015 $3.82
Dec2014 $3.10
Dec2013 $2.76
Dec2012 -$2.33
Dec2011 -$6.47
Dec2010 -$8.38
Dec2009 -$7.33
Dec2008 $0.28
Dec2007 $30.02
Dec2006 $40.07
Dec2005 $37.10
Dec2004 $31.24
Dec2003 $29.62
Dec2002 $26.06

Recommended Reading:

Other ModernGraham posts about the company

Benjamin Graham Would Love These 10 Companies Today
Citigroup Inc Valuation – July 2016 $C
5 Companies for Value Investors with a High Beta – July 2016
Stocks Trading Below Their Graham Number – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016

Other ModernGraham posts about related companies

People’s United Financial Inc Valuation – March 2018 $PBCT
JPMorgan Chase & Co Valuation – February 2018 $JPM
Opus Bank Valuation – Initial Coverage $OPB
Wells Fargo & Co Valuation – August 2017 $WFC
Old National Bancorp Valuation – Initial Coverage $ONB
Dime Community Bancshares Inc Valuation – Initial Coverage $DCOM
LegacyTexas Financial Group Inc Valuation – Initial Coverage $LTXB
SunTrust Banks Inc Valuation – April 2017 $STI
Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD
Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI

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.

People’s United Financial Inc Valuation – March 2018 $PBCT

Company Profile (obtained from Marketwatch): People’s United Financial, Inc. is a bank and financial holding company, which engages in the provision of commercial banking, retail and business banking, and wealth management services to individual, corporate and municipal customers. It operates through the Commercial Banking and Retail Banking segments. The Commercial Banking segment consists commercial real estate lending, commercial and industrial lending, and commercial deposit gathering activities. This segment also includes the equipment financing operations of People’s Capital and Leasing Corp. and People’s United Equipment Finance Corp, as well as cash management, correspondent banking and municipal banking. The Retail Banking segment comprises consumer lending, and consumer deposit gathering activities, consumer lending (including residential mortgage and home equity lending), and merchant services. This segment also provides brokerage, financial advisory services, investment management services and life insurance provided by People’s Securities, Inc. and non-institutional trust services. The company was founded on November 2, 2006 and is headquartered in Bridgeport, CT.

PBCT Chart

PBCT data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PBCT – March 2018

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 $6,627,255,795 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 185.32% Pass
5. Moderate PEmg Ratio PEmg < 20 18.76 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.13 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

EPSmg $1.02
MG Growth Estimate 6.53%
MG Value $21.99
Opinion Fairly Valued
MG Grade A
MG Value based on 3% Growth $14.79
MG Value based on 0% Growth $8.67
Market Implied Growth Rate 5.13%
Current Price $19.14
% of Intrinsic Value 87.04%

People’s United Financial, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.71 in 2014 to an estimated $1.02 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 5.13% 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 within a margin of safety relative to the price.

At the time of valuation, further research into People’s United Financial, Inc. revealed the company was trading below its Graham Number of $21.22. The company pays a dividend of $0.69 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.76, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

People’s United Financial, Inc. fares extremely well in the ModernGraham grading system, scoring an A.

Stage 3: Information for Further Research

Graham Number $21.22
PEmg 18.76
PB Ratio 1.13
Dividend Yield 3.59%
TTM Dividend $0.69
Number of Consecutive Years of Dividend Growth 20

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $3,883,800,000
Total Assets $44,453,400,000
Intangible Assets $2,560,000,000
Total Liabilities $38,633,500,000
Shares Outstanding (Diluted Average) 342,333,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.22
Dec2017 $0.97
Dec2016 $0.92
Dec2015 $0.86
Dec2014 $0.84
Dec2013 $0.74
Dec2012 $0.72
Dec2011 $0.55
Dec2010 $0.24
Dec2009 $0.30
Dec2008 $0.41
Dec2007 $0.52
Dec2006 $0.41
Dec2005 $0.46
Dec2004 $0.68
Dec2003 $0.22
Dec2002 $0.19
Dec2001 $0.26
Dec2000 $0.38
Dec1999 $0.81
Dec1998 $0.64

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.02
Dec2017 $0.90
Dec2016 $0.85
Dec2015 $0.79
Dec2014 $0.71
Dec2013 $0.60
Dec2012 $0.50
Dec2011 $0.40
Dec2010 $0.34
Dec2009 $0.40
Dec2008 $0.46
Dec2007 $0.48
Dec2006 $0.44
Dec2005 $0.42
Dec2004 $0.38
Dec2003 $0.28
Dec2002 $0.36

Recommended Reading:

Other ModernGraham posts about the company

People’s United Financial Inc Valuation – June 2016 $PBCT
10 Companies Benjamin Graham Would Invest In Today – March 2016
Dividend Growth Stocks for Intelligent Investors – February 2016
13 Best Stocks For Value Investors This Week – 12/12/15
People’s United Financial Corp Valuation – December 2015 Update $PBCT

Other ModernGraham posts about related companies

JPMorgan Chase & Co Valuation – February 2018 $JPM
Opus Bank Valuation – Initial Coverage $OPB
Wells Fargo & Co Valuation – August 2017 $WFC
Old National Bancorp Valuation – Initial Coverage $ONB
Dime Community Bancshares Inc Valuation – Initial Coverage $DCOM
LegacyTexas Financial Group Inc Valuation – Initial Coverage $LTXB
SunTrust Banks Inc Valuation – April 2017 $STI
Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD
Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI
TCF Financial Corp Valuation – Initial Coverage $TCB

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.

JPMorgan Chase & Co Valuation – February 2018 $JPM

Company Profile (obtained from Marketwatch): JPMorgan Chase & Co. is a financial holding company, which provides financial and investment banking services. It offers a range of investment banking products and services in all capital markets, including advising on corporate strategy and structure; capital raising in equity and debt markets; sophisticated risk management; market making in cash securities and derivative instruments; and prime brokerage and research. It also offers investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. The company operates its business through the following segments: Consumer and Community Banking; Corporate and Investment Bank; Commercial Banking; and Asset & Wealth Management. The Consumer and Community Banking segment serves consumers and businesses through personal service at bank branches and through automated teller machine, online, mobile, and telephone banking. It is organized into Consumer and Business Banking, Mortgage Banking and Card, Merchant Services and Auto Card. The segment’s Consumer and Business banking offers deposit and investment products and services to consumers, and lending, deposit, and cash management and payment solutions to small businesses; Mortgage Banking includes mortgage origination and servicing activities, as well as portfolios comprised of residential mortgages and home equity loans, including the purchased credit impaired portfolio acquired in the Washington Mutual transaction; and Auto Card issues credit cards to consumers and small businesses, provides payment services to corporate and public sector clients through its commercial card products, offers payment processing services to merchants, and provides auto and student loan services. The Corporate and Investment Bank segment offers a suite of investment banking, market-making, prime brokerage, and treasury and securities products and services to a global client base of corporations, investors, financial institutions, government and municipal entities. It offers a range of investment banking products and services in all capital markets, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication. The Commercial Banking segment delivers industry knowledge, local expertise and dedicated service to United States and its multinational clients, including corporations, municipalities, financial institutions, and non profit entities. This segment provides financing to real estate investors and owners as well as financial solutions, including lending, treasury services, investment banking, and asset management to meet its client’s domestic and international financial needs. The Asset & Wealth Management segment provides asset and wealth management services. It offers investment management across all major asset services, including equities, fixed income, alternatives, and money market funds. JPMorgan Chase was founded in 1968 and is headquartered in New York, NY.

JPM Chart

JPM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JPM – February 2018

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 $407,033,491,576 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 88.97% Pass
5. Moderate PEmg Ratio PEmg < 20 17.65 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.61 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

EPSmg $6.65
MG Growth Estimate 5.68%
MG Value $131.95
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $96.38
MG Value based on 0% Growth $56.50
Market Implied Growth Rate 4.57%
Current Price $117.31
% of Intrinsic Value 88.90%

JPMorgan Chase & Co. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.82 in 2014 to an estimated $6.65 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.57% 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 within a margin of safety relative to the price.

At the time of valuation, further research into JPMorgan Chase & Co. revealed the company was trading above its Graham Number of $107.91. The company pays a dividend of $2.12 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 17.65, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

JPMorgan Chase & Co. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $107.91
PEmg 17.65
PB Ratio 1.61
Dividend Yield 1.81%
TTM Dividend $2.12
Number of Consecutive Years of Dividend Growth 7

Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $284,080,000,000
Total Assets $2,533,600,000,000
Intangible Assets $54,392,000,000
Total Liabilities $2,277,907,000,000
Shares Outstanding (Diluted Average) 3,512,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.72
Dec2017 $6.31
Dec2016 $6.19
Dec2015 $6.00
Dec2014 $5.29
Dec2013 $4.34
Dec2012 $5.20
Dec2011 $4.48
Dec2010 $3.96
Dec2009 $2.26
Dec2008 $1.35
Dec2007 $4.38
Dec2006 $4.04
Dec2005 $2.38
Dec2004 $1.55
Dec2003 $3.24
Dec2002 $0.80
Dec2001 $0.80
Dec2000 $2.86
Dec1999 $3.69
Dec1998 $2.83

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.65
Dec2017 $5.95
Dec2016 $5.65
Dec2015 $5.27
Dec2014 $4.82
Dec2013 $4.41
Dec2012 $4.11
Dec2011 $3.47
Dec2010 $3.05
Dec2009 $2.69
Dec2008 $2.85
Dec2007 $3.44
Dec2006 $2.78
Dec2005 $2.01
Dec2004 $1.84
Dec2003 $2.08
Dec2002 $1.73

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Defensive Investor – July 2016
5 Undervalued Dow Components to Research – July 2016
10 Low PE Stocks for the Defensive Investor – June 2016
10 Low PE Stocks for the Defensive Investor – May 2016
18 Best Stocks For Value Investors This Week – 1/30/16

Other ModernGraham posts about related companies

Opus Bank Valuation – Initial Coverage $OPB
Wells Fargo & Co Valuation – August 2017 $WFC
Old National Bancorp Valuation – Initial Coverage $ONB
Dime Community Bancshares Inc Valuation – Initial Coverage $DCOM
LegacyTexas Financial Group Inc Valuation – Initial Coverage $LTXB
SunTrust Banks Inc Valuation – April 2017 $STI
Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD
Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI
TCF Financial Corp Valuation – Initial Coverage $TCB
Canadian Western Bank Valuation – Initial Coverage $TSE:CWB

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.

Opus Bank Valuation – Initial Coverage $OPB

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 Undervalued Stocks for the Enterprising Investor – August 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 Opus Bank (OPB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Opus Bank is a commercial bank. The Company provides banking products, services and solutions to its clients through its Retail Bank, Commercial Bank, Merchant Bank, and Correspondent Bank. The Company’s Commercial Bank consists Commercial Banking, Business Banking, Healthcare Banking, Technology Banking, Fiduciary Banking, Institutional Syndications and Commercial Real Estate Banking (CREB), which includes Income Property Banking, its Structured Finance Group and Capital Markets Group. Through its Merchant Bank, the Company offers transaction support, and debt and equity capital to entrepreneurs, small and mid-sized business and middle-market companies. Through its Retail Bank, the Company provides banking solutions for small and mid-sized companies, entrepreneurs, real estate investors, professional and high net worth individuals. Through its Correspondent Bank, the Company offers loan and depository services to other financial institutions.

OPB Chart

OPB data by YCharts

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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.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of OPB – August 2017

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 $727,869,597 Fail
2. Earnings Stability Positive EPS for 10 years prior Fail
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 11866566.67% Pass
5. Moderate PEmg Ratio PEmg < 20 15.65 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.44
MG Growth Estimate -1.86%
MG Value $6.90
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $20.89
MG Value based on 0% Growth $12.25
Market Implied Growth Rate 3.58%
Current Price $22.55
% of Intrinsic Value 326.81%

Opus Bank does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  small size, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings growth 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 seeing its EPSmg (normalized earnings) decline from $1.64 in 2013 to an estimated $1.44 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 3.58% 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 Opus Bank revealed the company was trading below its Graham Number of $29.57.  The company pays a dividend of $0.53 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 15.65, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Opus Bank receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $29.57
PEmg 15.65
PB Ratio 0.86
Dividend Yield 2.35%
TTM Dividend $0.53
Number of Consecutive Years of Dividend Growth 2

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Useful Links:

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

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $197,479,000
Total Assets $7,882,563,000
Intangible Assets $382,550,000
Total Liabilities $6,956,628,000
Shares Outstanding (Diluted Average) 35,513,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.44
Dec2016 $0.33
Dec2015 $1.79
Dec2014 $1.38
Dec2013 $4.96
Dec2012 $0.79
Dec2011 -$1.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.44
Dec2016 $1.58
Dec2015 $1.99
Dec2014 $1.79
Dec2013 $1.64
Dec2012 -$0.03
Dec2011 -$0.37

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company. None.  This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Wells Fargo & Co Valuation – August 2017 $WFC
Old National Bancorp Valuation – Initial Coverage $ONB
Dime Community Bancshares Inc Valuation – Initial Coverage $DCOM
LegacyTexas Financial Group Inc Valuation – Initial Coverage $LTXB
SunTrust Banks Inc Valuation – April 2017 $STI
Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD
Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI
TCF Financial Corp Valuation – Initial Coverage $TCB
Canadian Western Bank Valuation – Initial Coverage $TSE:CWB
CVB Financial Corp Valuation – Initial Coverage $CVBF

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.

Best Stocks Below Their Graham Number – August 2017

Graham Number Stocks

One popular approach to investing based on Benjamin Graham’s methods is to use the so-called “Graham Number.”  There are some important differences between the Graham Number and the Graham Formula, but using the Graham Number is definitely useful even if the investor only uses it as a screening tactic.

I’ve selected the best companies reviewed by ModernGraham which trade below their Graham Number.  The companies selected all are found suitable for the Defensive Investor and/or the Enterprising Investor, and have been valued as undervalued based on the ModernGraham valuation model.  Further, the overall screen found 36 companies meeting these criteria (out of the 897+ companies covered by ModernGraham), and the full list can be found near the end of this article; however, to cut down on the length of the post, I’ve selected the ten which trade furthest below their Graham Number.

Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

These companies have demonstrated strong financial positions through passing the rigorous requirements of the ModernGraham Investor and show potential for capital growth based on their current price in relation to intrinsic value.  As such, these graham number stocks may be a great investment if they prove to be suitable for your portfolio after your own additional research.

Capital One Financial Corp. (COF)

Capital One Financial Corp. is suitable 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. 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 Undervalued after growing its EPSmg (normalized earnings) from $5.15 in 2012 to an estimated $7.13 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.05% 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.  (See the full valuation)

COF charts July 2016

Celestica Inc (TSE:CLS)

Celestica Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. 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 $0.29 in 2012 to an estimated $0.98 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Celestica Inc revealed the company was trading below its Graham Number of $20.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.51, which was below the industry average of 28.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.81.  (See the full valuation)

Foot Locker, Inc. (FL)

Foot Locker, Inc. is suitable 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, and the high PB 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 Undervalued after growing its EPSmg (normalized earnings) from $2.16 in 2014 to an estimated $4.47 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.23% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Foot Locker, Inc. revealed the company was trading above its Graham Number of $48.72. The company pays a dividend of $1.1 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 16.96, which was below the industry average of 50.09, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $11.28.  (See the full valuation)

Kelly Services, Inc. (KELYA)

Kelly Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.1 in 2013 to an estimated $1.8 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.74% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Kelly Services, Inc. revealed the company was trading below its Graham Number of $30.13. The company pays a dividend of $0.28 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 11.99, which was below the industry average of 21.9, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.19.  (See the full valuation)

Signet Jewelers Ltd. (SIG)

Signet Jewelers Ltd. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Signet Jewelers Ltd. revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 15.29, which was below the industry average of 26.36, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.06.  (See the full valuation)

Starwood Property Trust, Inc. (STWD)

Starwood Property Trust, Inc. is suitable 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, and the poor dividend history. 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.5 in 2013 to an estimated $1.87 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 1.84% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Starwood Property Trust, Inc. revealed the company was trading below its Graham Number of $29.28. The company pays a dividend of $1.92 per share, for a yield of 8.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.17, which was below the industry average of 51.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  (See the full valuation)

Lincoln National Corporation (LNC)

Lincoln National Corporation is suitable 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. 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 Undervalued after growing its EPSmg (normalized earnings) from $2.04 in 2012 to an estimated $5.16 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.12% 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.  (See the full valuation)

LNC charts May 2016

Canadian Western Bank (TSE:CWB)

Canadian Western Bank qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value 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 $2.14 in 2013 to an estimated $2.69 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.1% 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.

At the time of valuation, further research into Canadian Western Bank revealed the company was trading below its Graham Number of $36.05. The company pays a dividend of $0.92 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.7, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.    (See the full valuation)

Citigroup Inc (C)

Citigroup Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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.  (See the full valuation)

C charts July 2016

Linamar Corporation (TSE:LNR)

 

Linamar Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. 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 $2.22 in 2013 to an estimated $6.93 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.1% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Linamar Corporation revealed the company was trading below its Graham Number of $83.15. The company pays a dividend of $0.4 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 8.7, which was below the industry average of 18.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.49.  (See the full valuation)

 

The Full List

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Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $112.32 $79.84 71.08% 12.84 2.05% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $173.48 $46.75 26.95% 10.37 1.84% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $124.11 $74.23 59.81% 14.11 0.00% $81.27
ASH Ashland Global Holdings Inc. E 7/27/2016 $161.82 $60.98 37.68% 12.65 2.56% $73.88
BAC Bank of America Corp E 7/14/2016 $35.60 $23.62 66.35% 25.67 0.85% $23.92
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $93.73 $27.27 29.09% 5.55 0.00% $41.96
C Citigroup Inc E 7/19/2016 $157.95 $66.58 42.15% 16.24 0.30% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $42.30 $22.31 52.74% 20.28 1.34% $24.73
COF Capital One Financial Corp. E 7/6/2016 $142.36 $81.53 57.27% 11.43 1.96% $122.14
CVG Convergys Corp E 3/18/2017 $45.02 $22.92 50.91% 15.38 1.53% $23.70
DFS Discover Financial Services D 1/28/2017 $109.91 $59.43 54.07% 10.81 1.95% $62.08
FL Foot Locker, Inc. E 3/6/2017 $172.17 $34.38 19.97% 7.69 3.20% $48.72
KBH KB Home E 2/4/2017 $84.55 $22.21 26.27% 10.10 0.45% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $50.08 $21.37 42.67% 11.87 1.31% $30.13
LNC Lincoln National Corporation E 5/20/2016 $198.66 $68.02 34.24% 13.18 1.62% $89.07
MET Metlife Inc E 12/13/2016 $119.73 $47.02 39.27% 11.64 3.30% $78.35
NAVI Navient Corp E 8/31/2016 $92.14 $13.60 14.76% 5.69 4.71% $21.98
PBCT People’s United Financial, Inc. D 6/20/2016 $22.89 $16.63 72.65% 20.04 4.03% $17.28
RF Regions Financial Corp E 6/27/2016 $29.52 $14.06 47.63% 18.26 1.71% $14.93
SANM Sanmina Corp E 12/5/2016 $106.05 $35.20 33.19% 12.80 0.00% $36.05
SENEA Seneca Foods Corp E 12/22/2016 $69.62 $28.90 41.51% 10.63 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $222.15 $53.59 24.12% 9.29 1.87% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $54.43 $16.25 29.85% 5.74 3.08% $38.13
STI SunTrust Banks, Inc. E 4/11/2017 $135.29 $56.13 41.49% 15.99 1.78% $61.96
STWD Starwood Property Trust, Inc. E 4/11/2017 $29.84 $22.08 73.99% 11.81 8.70% $29.28
SUP Superior Industries International Inc E 3/7/2017 $19.90 $14.35 72.11% 10.79 5.02% $25.53
SYF Synchrony Financial E 3/2/2017 $75.28 $30.07 39.94% 10.74 0.86% $34.07
SYKE Sykes Enterprises, Incorporated E 3/20/2017 $62.24 $26.14 42.00% 16.14 0.00% $27.43
TCF TCF Financial Corporation E 3/26/2017 $41.61 $14.93 35.88% 13.82 2.01% $18.02
TRV Travelers Companies Inc D 12/1/2016 $320.65 $127.89 39.88% 12.96 1.52% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $37.85 $14.38 37.99% 14.67 0.00% $20.71
TSE:CM Canadian Imperial Bank of Commerce E 1/12/2017 $185.80 $106.94 57.56% 11.12 4.44% $114.08
TSE:CWB Canadian Western Bank D 3/25/2017 $43.69 $28.00 64.09% 10.41 3.29% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $266.91 $67.67 25.35% 9.76 0.59% $83.15
TSE:TD Toronto-Dominion Bank D 4/11/2017 $103.85 $63.73 61.37% 13.79 3.45% $65.31
URBN Urban Outfitters, Inc. D 7/19/2016 $27.71 $19.27 69.54% 10.89 0.00% $20.09

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield Graham Number
AFL AFLAC Incorporated D 12/19/2016 $79.84 2.05% $87.98
AHL Aspen Insurance Holdings Limited E 12/13/2016 $46.75 1.84% $82.44
ARW Arrow Electronics, Inc. E 7/3/2016 $74.23 0.00% $81.27
ASH Ashland Global Holdings Inc. E 7/27/2016 $60.98 2.56% $73.88
BAC Bank of America Corp E 7/14/2016 $23.62 0.85% $23.92
BBBY Bed Bath & Beyond Inc. D 6/14/2016 $27.27 0.00% $41.96
C Citigroup Inc E 7/19/2016 $66.58 0.30% $85.07
CNO CNO Financial Group Inc E 1/28/2017 $22.31 1.34% $24.73
COF Capital One Financial Corp. E 7/6/2016 $81.53 1.96% $122.14
CVG Convergys Corp E 3/18/2017 $22.92 1.53% $23.70
DFS Discover Financial Services D 1/28/2017 $59.43 1.95% $62.08
FL Foot Locker, Inc. E 3/6/2017 $34.38 3.20% $48.72
KBH KB Home E 2/4/2017 $22.21 0.45% $25.21
KELYA Kelly Services, Inc. E 2/7/2017 $21.37 1.31% $30.13
LNC Lincoln National Corporation E 5/20/2016 $68.02 1.62% $89.07
MET Metlife Inc E 12/13/2016 $47.02 3.30% $78.35
NAVI Navient Corp E 8/31/2016 $13.60 4.71% $21.98
PBCT People’s United Financial, Inc. D 6/20/2016 $16.63 4.03% $17.28
RF Regions Financial Corp E 6/27/2016 $14.06 1.71% $14.93
SANM Sanmina Corp E 12/5/2016 $35.20 0.00% $36.05
SENEA Seneca Foods Corp E 12/22/2016 $28.90 0.00% $69.20
SIG Signet Jewelers Ltd. E 1/9/2017 $53.59 1.87% $71.41
SPOK Spok Holdings, Inc. E 2/9/2017 $16.25 3.08% $38.13
STI SunTrust Banks, Inc. E 4/11/2017 $56.13 1.78% $61.96
STWD Starwood Property Trust, Inc. E 4/11/2017 $22.08 8.70% $29.28
SUP Superior Industries International Inc E 3/7/2017 $14.35 5.02% $25.53
SYF Synchrony Financial E 3/2/2017 $30.07 0.86% $34.07
SYKE Sykes Enterprises, Incorporated E 3/20/2017 $26.14 0.00% $27.43
TCF TCF Financial Corporation E 3/26/2017 $14.93 2.01% $18.02
TRV Travelers Companies Inc D 12/1/2016 $127.89 1.52% $134.38
TSE:CLS Celestica Inc E 1/11/2017 $14.38 0.00% $20.71
TSE:CM Canadian Imperial Bank of Commerce E 1/12/2017 $106.94 4.44% $114.08
TSE:CWB Canadian Western Bank D 3/25/2017 $28.00 3.29% $36.05
TSE:LNR Linamar Corporation E 3/26/2017 $67.67 0.59% $83.15
TSE:TD Toronto-Dominion Bank D 4/11/2017 $63.73 3.45% $65.31
URBN Urban Outfitters, Inc. D 7/19/2016 $19.27 0.00% $20.09

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Disclaimer: 

The author held a long position in Starwood Property Trust (STWD) but did not hold a position in any other company mentioned in this article at the time of publication and had no specific intention of changing that position within the next 72 hours; however, the author does intend to make some trades in the next 72 hours and may select a company from this list.  See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

Wells Fargo & Co Valuation – August 2017 $WFC

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 – March 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 Wells Fargo & Co (WFC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Wells Fargo & Company is a bank holding company. The Company is a diversified financial services company. It has three operating segments: Community Banking, Wholesale Banking, and Wealth and Investment Management. The Company offers its services under three categories: personal, small business and commercial. It provides retail, commercial and corporate banking services through banking locations and offices, the Internet and other distribution channels to individuals, businesses and institutions in all 50 states, the District of Columbia and in other countries. It provides other financial services through its subsidiaries engaged in various businesses, including wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, securities brokerage and investment banking, computer and data processing services, investment advisory services, mortgage-backed securities servicing and venture capital investment.

WFC Chart

WFC data by YCharts

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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.

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of WFC – August 2017

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 $257,827,293,159 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 159.23% Pass
5. Moderate PEmg Ratio PEmg < 20 12.93 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.27 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

EPSmg $4.02
MG Growth Estimate 4.02%
MG Value $66.46
Opinion Fairly Valued
MG Grade B+
MG Value based on 3% Growth $58.25
MG Value based on 0% Growth $34.15
Market Implied Growth Rate 2.21%
Current Price $51.94
% of Intrinsic Value 78.15%

Wells Fargo & Co qualifies for both the Defensive Investor and the Enterprising Investor.  In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.17 in 2013 to an estimated $4.02 for 2017.  This level of demonstrated earnings growth supports the market’s implied estimate of 2.21% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Wells Fargo & Co revealed the company was trading below its Graham Number of $55.83.  The company pays a dividend of $1.52 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 12.93, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Wells Fargo & Co performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Graham Number $55.83
PEmg 12.93
PB Ratio 1.27
Dividend Yield 2.92%
TTM Dividend $1.52
Number of Consecutive Years of Dividend Growth 6

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Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2017
Long-Term Debt & Capital Lease Obligation $238,869,000,000
Total Assets $1,930,871,000,000
Intangible Assets $40,761,000,000
Total Liabilities $1,725,641,000,000
Shares Outstanding (Diluted Average) 5,037,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.97
Dec2016 $3.99
Dec2015 $4.12
Dec2014 $4.10
Dec2013 $3.89
Dec2012 $3.36
Dec2011 $2.82
Dec2010 $2.21
Dec2009 $1.75
Dec2008 $0.70
Dec2007 $2.38
Dec2006 $2.47
Dec2005 $2.25
Dec2004 $2.05
Dec2003 $1.83
Dec2002 $1.58
Dec2001 $0.99
Dec2000 $1.16
Dec1999 $1.15
Dec1998 $0.59
Dec1997 $0.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.02
Dec2016 $3.99
Dec2015 $3.88
Dec2014 $3.60
Dec2013 $3.17
Dec2012 $2.59
Dec2011 $2.13
Dec2010 $1.83
Dec2009 $1.73
Dec2008 $1.80
Dec2007 $2.30
Dec2006 $2.18
Dec2005 $1.94
Dec2004 $1.69
Dec2003 $1.46
Dec2002 $1.21
Dec2001 $0.99

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Defensive Investor – May 2016
13 Best Stocks For Value Investors This Week – 12/12/15
Wells Fargo & Co Valuation – December 2015 Update $WFC
The Best Companies of the Banking Industry – October 2015
10 Most Undervalued Companies for the Defensive Investor – September 2015

Other ModernGraham posts about related companies

Old National Bancorp Valuation – Initial Coverage $ONB
Dime Community Bancshares Inc Valuation – Initial Coverage $DCOM
LegacyTexas Financial Group Inc Valuation – Initial Coverage $LTXB
SunTrust Banks Inc Valuation – April 2017 $STI
Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD
Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI
TCF Financial Corp Valuation – Initial Coverage $TCB
Canadian Western Bank Valuation – Initial Coverage $TSE:CWB
CVB Financial Corp Valuation – Initial Coverage $CVBF
Customers Bancorp Inc Valuation – Initial Coverage $CUBI

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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