Cullen/Frost Bankers Inc Valuation – Initial Coverage $CFR

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 Cullen/Frost Bankers Inc (CFR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cullen/Frost Bankers, Inc. is a financial holding and bank holding company. The Company, through its subsidiaries, offers commercial and consumer banking services, as well as trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing services. It serves various industries, such as energy, manufacturing, services, construction and retail. It operates through two segments, which include Banking and Frost Wealth Advisors. Its Banking segment includes both commercial and consumer banking services, Frost Insurance Agency and Frost Securities. Its Banking segment offers commercial banking services, such as lending and cash management products to corporations and other business clients. Its Frost Wealth Advisors segment includes fee-based services within private trust, retirement services and financial management services, including personal wealth management and securities brokerage services.

CFR Chart

CFR data by YCharts

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CFR – 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 $5,560,311,623 Pass
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 30.15% Fail
5. Moderate PEmg Ratio PEmg < 20 20.26 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.73 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 $4.27
MG Growth Estimate 3.02%
MG Value $62.02
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $61.87
MG Value based on 0% Growth $36.27
Market Implied Growth Rate 5.88%
Current Price $86.46
% of Intrinsic Value 139.41%

Cullen/Frost Bankers, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the 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 $3.55 in 2012 to an estimated $4.27 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.88% 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 Cullen/Frost Bankers, Inc. revealed the company was trading above its Graham Number of $69.78. The company pays a dividend of $2.14 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 20.26, which was above the industry average of 13.43.

Cullen/Frost Bankers, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $69.78
PEmg 20.26
PB Ratio 1.73
Dividend Yield 2.48%
TTM Dividend $2.14
Number of Consecutive Years of Dividend Growth 20


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Long-Term Debt & Capital Lease Obligation $236,072,000
Total Assets $29,602,912,000
Intangible Assets $661,599,000
Total Liabilities $26,441,116,000
Shares Outstanding (Diluted Average) 63,141,000

Earnings Per Share History

Next Fiscal Year Estimate $4.51
Dec2015 $4.28
Dec2014 $4.29
Dec2013 $3.80
Dec2012 $3.86
Dec2011 $3.54
Dec2010 $3.44
Dec2009 $3.00
Dec2008 $3.50
Dec2007 $3.55
Dec2006 $3.42
Dec2005 $3.07
Dec2004 $2.66
Dec2003 $2.48
Dec2002 $2.29
Dec2001 $1.57
Dec2000 $2.03
Dec1999 $1.78
Dec1998 $1.38
Dec1997 $1.34
Dec1996 $1.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.27
Dec2015 $4.08
Dec2014 $3.92
Dec2013 $3.66
Dec2012 $3.55
Dec2011 $3.40
Dec2010 $3.35
Dec2009 $3.30
Dec2008 $3.38
Dec2007 $3.23
Dec2006 $2.97
Dec2005 $2.64
Dec2004 $2.35
Dec2003 $2.14
Dec2002 $1.92
Dec2001 $1.69
Dec2000 $1.68

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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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