In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period. Â 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. Â By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value toÂ 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. Â This isÂ 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. Â By using theÂ ModernGraham methodÂ 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 Comerica Inc. (CMA)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Comerica Incorporated is a financial services company. The Company’s principal activity is lending to and accepting deposits from businesses and individuals. It operates in three business segments: the Business Bank, the Retail Bank and Wealth Management. In addition, it also operates in the Finance segment. The Business Bank segment offers commercial loans and lines of credit, deposits, cash management, capital market products, international trade finance, letters of credit, foreign exchange management services and loan syndication services. The Retail Bank segment offers deposit accounts, installment loans, credit cards, student loans, home equity lines of credit and residential mortgage loans. The Wealth Management segment offers fiduciary services, private banking, retirement services, investment management and advisory services, investment banking and brokerage services. The Finance segment includes its securities portfolio, and asset and liability management activities.
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. Here is aÂ free sample valuation pdf, and 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||$7,624,401,952||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||-27.86%||Fail|
|5. Moderate PEmg Ratio||PEmg < 20||16.37||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.00||Pass|
|Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.|
|1. Earnings Stability||Positive EPS for 5 years prior||Pass|
|2. Dividend Record||Currently Pays Dividend||Pass|
|3. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$37.67|
|MG Value based on 0% Growth||$22.08|
|Market Implied Growth Rate||3.94%|
|% of Intrinsic Value||42.53%|
Comerica Inc.Â qualifies for the Enterprising Investor but not the more conservativeÂ Defensive Investor. Â The Defensive Investor has concerns regarding the insufficient earnings stability or growth over the last ten years while the Enterprising Investor has no initial concerns.Â As a result, allÂ Enterprising InvestorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.
As for a valuation,Â the company appears to be undervalued after growingÂ itsÂ EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.60 for 2015. Â This level of demonstrated earnings growth outpacesÂ the market’s implied estimate of 3.94% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value aboveÂ the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. Â What do you think? Â What value would you put on Comerica Inc. (CMA)? Â Where do you see the company going in the future? Â Is there a company you like better? Â Leave aÂ comment on ourÂ Facebook pageÂ or mentionÂ @ModernGrahamÂ on Twitter to discuss.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||6|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Shares Outstanding (Diluted Average)||178,360,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.07|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.60|
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please review our detailed disclaimer.