Banks Stocks

Fifth Third Bancorp Valuation – July 2016 $FITB

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 Companies Benjamin Graham Would Invest In Today – June 2016.  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 Fifth Third Bancorp (FITB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Fifth Third Bancorp is a bank holding company and a financial holding company. The Company conducts its principal lending, deposit gathering, transaction processing and service advisory activities through its banking and non-banking subsidiaries from banking centers located throughout the Midwestern and Southeastern regions of the United States. The Company operates through four segments: Commercial Banking, Branch Banking, Consumer Lending and Investment Advisors. It offers commercial and industrial loans, commercial mortgage loans, commercial construction loans, commercial leases, residential mortgage loans, home equity, automobile loans, credit card, and other consumer loans and leases. The Company offers various types of deposits, such as demand deposits, interest checking deposits, savings deposits, money market deposits, transaction deposits and other time deposits.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FITB – July 2016

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 $13,748,686,511 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 -502.34% Fail
5. Moderate PEmg Ratio PEmg < 20 10.01 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.83 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

FITB value chart July 2016

EPSmg $1.74
MG Growth Estimate 15.00%
MG Value $67.04
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $25.25
MG Value based on 0% Growth $14.80
Market Implied Growth Rate 0.75%
Current Price $17.43
% of Intrinsic Value 26.00%

Fifth Third 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 $0.82 in 2012 to an estimated $1.74 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.75% 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.

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

Stage 3: Information for Further Research

FITB charts July 2016

Graham Number $25.45
PEmg 10.01
PB Ratio 0.83
Dividend Yield 2.98%
TTM Dividend $0.52
Number of Consecutive Years of Dividend Growth 6

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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 3/1/2016
Long-Term Debt $15,305,000,000
Total Assets $142,430,000,000
Intangible Assets $3,112,000,000
Total Liabilities $126,107,000,000
Shares Outstanding (Diluted Average) 778,392,000

Earnings Per Share History

Next Fiscal Year Estimate $1.48
Dec2015 $2.01
Dec2014 $1.66
Dec2013 $2.02
Dec2012 $1.66
Dec2011 $1.18
Dec2010 $0.63
Dec2009 $0.67
Dec2008 -$3.94
Dec2007 $1.99
Dec2006 $2.13
Dec2005 $2.77
Dec2004 $2.68
Dec2003 $3.03
Dec2002 $2.76
Dec2001 $1.86
Dec2000 $1.83
Dec1999 $1.43
Dec1998 $1.17
Dec1997 $1.13
Dec1996 $0.96

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.74
Dec2015 $1.82
Dec2014 $1.62
Dec2013 $1.48
Dec2012 $0.82
Dec2011 $0.30
Dec2010 $0.01
Dec2009 $0.04
Dec2008 $0.19
Dec2007 $2.34
Dec2006 $2.57
Dec2005 $2.74
Dec2004 $2.62
Dec2003 $2.46
Dec2002 $2.05
Dec2001 $1.63
Dec2000 $1.44

Recommended Reading:

Other ModernGraham posts about the company

Stocks Trading Below Their Graham Number – May 2016
Stocks Trading Below Their Graham Number – February 2016
10 Most Undervalued Companies for the Enterprising Investor – February 2016
10 Most Undervalued Companies for the Enterprising Investor – February 2016
19 Best Stocks For Value Investors This Week – 1/9/16

Other ModernGraham posts about related companies

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Regions Financial Corp – June 2016 $RF
Wells Fargo & Co Valuation – June 2016 $WFC
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State Street Corp Valuation – June 2016 $STT
KeyCorp Valuation – June 2016 $KEY
PNC Financial Services Group Inc Valuation – June 2016 $PNC
People’s United Financial Inc Valuation – June 2016 $PBCT
BB&T Corporation Valuation – May 2016 $BBT
SunTrust Banks Inc Valuation – February 2016 $STI

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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