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 – August 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 Cardinal Financial Corp (CFNL) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Cardinal Financial Corporation is a financial holding company. The Company owns Cardinal Bank (the Bank), a Virginia state-chartered community bank. The Bank operates in three business segments: commercial banking, mortgage banking and wealth management services. The commercial banking segment includes both commercial and consumer lending and provides customers such products as commercial loans, real estate loans, and other business financing and consumer loans. In addition, commercial banking segment provides customers with several choices of deposit products, including demand deposit accounts, savings accounts and certificates of deposit. The mortgage banking segment is engaged in the origination and acquisition of residential mortgages for sale into the secondary market. The wealth management services segment provides investment and financial advisory services to businesses and individuals, including financial planning, retirement/estate planning and investment management.
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Downloadable PDF version of this valuation:
moderngraham-valuation-of-cfnl-december-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 | $1,046,959,564 | Fail | |
| 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 | 608.93% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 24.97 | Fail | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.43 | 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 | $1.30 |
| MG Growth Estimate | 6.09% |
| MG Value | $26.98 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $18.92 |
| MG Value based on 0% Growth | $11.09 |
| Market Implied Growth Rate | 8.24% |
| Current Price | $32.58 |
| % of Intrinsic Value | 120.77% |
Cardinal Financial Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, 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 $0.93 in 2012 to an estimated $1.3 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.24% 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 Cardinal Financial Corporation revealed the company was trading above its Graham Number of $21.85. The company pays a dividend of $0.47 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 24.97, which was above the industry average of 13.43.
Cardinal Financial Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Graham Number | $21.85 |
| PEmg | 24.97 |
| PB Ratio | 2.43 |
| Dividend Yield | 1.44% |
| TTM Dividend | $0.47 |
| Number of Consecutive Years of Dividend Growth | 7 |
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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 | 9/1/2016 |
| Long-Term Debt & Capital Lease Obligation | $464,876,000 |
| Total Assets | $4,219,648,000 |
| Intangible Assets | $36,115,000 |
| Total Liabilities | $3,767,811,000 |
| Shares Outstanding (Diluted Average) | 33,767,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $1.54 |
| Dec2015 | $1.43 |
| Dec2014 | $1.00 |
| Dec2013 | $0.82 |
| Dec2012 | $1.51 |
| Dec2011 | $0.94 |
| Dec2010 | $0.62 |
| Dec2009 | $0.37 |
| Dec2008 | $0.01 |
| Dec2007 | $0.18 |
| Dec2006 | $0.30 |
| Dec2005 | $0.44 |
| Dec2004 | $0.19 |
| Dec2003 | $0.54 |
| Dec2002 | -$0.13 |
| Dec2001 | -$3.11 |
| Dec2000 | -$0.98 |
| Dec1999 | -$0.94 |
| Dec1998 | -$0.64 |
| Dec1997 | -$0.12 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $1.30 |
| Dec2015 | $1.17 |
| Dec2014 | $1.02 |
| Dec2013 | $0.97 |
| Dec2012 | $0.93 |
| Dec2011 | $0.57 |
| Dec2010 | $0.35 |
| Dec2009 | $0.23 |
| Dec2008 | $0.18 |
| Dec2007 | $0.29 |
| Dec2006 | $0.32 |
| Dec2005 | $0.08 |
| Dec2004 | -$0.30 |
| Dec2003 | -$0.67 |
| Dec2002 | -$1.23 |
| Dec2001 | -$1.58 |
| Dec2000 | -$0.72 |
Recommended Reading:
Other ModernGraham posts about the company
None. Â This is the first time ModernGraham has covered the company.
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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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