Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. 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 companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today – February 2016.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. Â What follows is a stock analysis showing a specific look at how SunTrust Banks Inc (STI)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Suntrust Banks, Inc. is a bank holding company and a financial holding company. Through its principal subsidiary, SunTrust Bank, the Company offers a line of financial services for consumers and businesses, including deposit, credit, mortgage banking, and trust and investment services. The Company’s other subsidiaries provide asset and wealth management, securities brokerage, and capital market services. SunTrust operates the following business segments: Consumer Banking and Private Wealth Management, Wholesale Banking, and Mortgage Banking. It also operates a Corporate Other segment, which includes the management of the Company’s investment securities portfolio, long-term debt, end-user derivative instruments, short-term liquidity and funding activities, balance sheet risk management, and most real estate assets. SunTrust operates primarily within Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia and the District of Columbia.
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||$17,943,677,781||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||272.12%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||10.67||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.76||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||$46.81|
|MG Value based on 0% Growth||$27.44|
|Market Implied Growth Rate||1.08%|
|% of Intrinsic Value||27.70%|
SunTrust Banks, 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. 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 $1.02 in 2012 to an estimated $3.23 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.08% 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.
SunTrust Banks, Inc. performs fairly well in the ModernGraham grading system, scoring a B.
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
|Balance Sheet Information||Dec2015|
|Shares Outstanding (Diluted Average)||520,586,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.20|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$3.23|
Other ModernGraham posts about the company
|Stocks Trading Below Their Graham Number â€“ February 2016|
|30 Companies in the Spotlight This Week â€“ 11/15/14|
|SunTrust Banks Inc. Annual Valuation â€“ 2014 $STI|
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 be sure to review our detailed disclaimer.