People’s United Financial (PBCT) Quarterly Valuation

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid bank in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how People’s United Financial fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): People’s United Financial, Inc. (People’s United Financial) is a savings and loan holding company. The principal business of People’s United Financial is to provide, through People’s United Bank and its subsidiaries, commercial banking, retail and business banking, and wealth management services to individual, corporate and municipal customers. Traditional banking activities are conducted primarily within New England and southeastern New York, and include extending secured and unsecured commercial and consumer loans, originating mortgage loans secured by residential and commercial properties, and accepting consumer, commercial and municipal deposits. In addition to traditional banking activities, People’s United Bank provides specialized financial services tailored to specific markets including: personal, institutional and employee benefit trust; cash management; and municipal banking and finance.

PBCT data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 4/6

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
5. Moderate PEmg ratio – PEmg is less than 20 – FAIL
6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

1. Earnings Stability – positive earnings per share for at least 5 years – PASS
2. Dividend Record – currently pays a dividend – PASS
3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value	$14.84
MG Opinion	Fairly Valued
Value Based on 3% Growth	$8.82
Value Based on 0% Growth	$5.17
Market Implied Growth Rate	7.15%
PEmg	22.80
PB Ratio	0.94

Balance Sheet – 9/30/2013

Total Debt	$3,016,900,000
Total Assets	$31,510,600,000
Intangible Assets	$1,954,500,000
Total Liabilities	$26,873,000,000
Outstanding Shares	315,800,000

Earnings Per Share

2013	$0.75
2012	$0.72
2011	$0.57
2010	$0.24
2009	$0.30
2008	$0.42
2007	$0.52
2006	$0.40
2005	$0.42
2004	-$0.02
2003	$0.22

Earnings Per Share – ModernGraham 

2013	$0.61
2012	$0.51
2011	$0.40
2010	$0.34
2009	$0.40
2008	$0.41

Dividend History

PBCT Dividend data by YCharts

Conclusion:

People’s United Financial is an excellent company for Enterprising Investors to keep on their watch list.  Defensive Investors are not as interested, due to the high PEmg ratio and the lack of earnings stability over the ten year historical period.  Enterprising Investors should feel very comfortable with the company, and should go ahead with further research into whether it would be suitable for their individual portfolios.  This research could include a review of other banks such as by reviewing ModernGraham’s valuation of JP Morgan (JPM) and ModernGraham’s valuation of Wells Fargo (WFC).  From a valuation standpoint, People’s United has grown its EPSmg (normalized earnings) from $0.40 in 2009 to $0.61 for 2013.  This level of growth supports the market’s implied growth estimate of 7.15%, and the ModernGraham valuation model returns an intrinsic value that is within our safety margin of the market’s current price, so the company would appear to be fairly valued.  It should also be noted that this company has a strong dividend yield, which may be attractive to Enterprising Investors.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on People’s United Financial (PBCT)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in People’s United Financial (PBCT) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.