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 Stocks for Using A Benjamin Graham Value Investing Strategy – DecemberÂ 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 Simmons First National Corporation (SFNC)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Simmons First National Corporation is a financial holding company. The Company’s subsidiary bank is Simmons First National Bank (Simmons Bank), a national bank. Simmons Bank and its subsidiaries provide banking services to individuals and businesses across the market areas they serve. Simmons Bank offers consumer, real estate and commercial loans, checking, savings and time deposits. It also offers a range of products and services, including credit cards, trust services, investments, agricultural finance lending, equipment lending, insurance, consumer finance and small business administration (SBA) lending. The Company conducts its banking operations through approximately 150 branches or financial centers, located in communities throughout Arkansas, Missouri, and Kansas. Its loan portfolios were loans to businesses (commercial loans, commercial real estate loans and agricultural loans) and individuals (consumer loans, credit card loans and single-family residential real estate loans).
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. Â In addition,Â 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||$1,982,739,635||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||38.78%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||26.01||Fail|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.69||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||6.00%|
|MG Value based on 3% Growth||$35.07|
|MG Value based on 0% Growth||$20.56|
|Market Implied Growth Rate||8.75%|
|% of Intrinsic Value||126.92%|
Simmons First National 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 $1.73 in 2012 to an estimated $2.42 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.75% 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 below the price.
At the time of valuation, further research into Simmons First National Corporation revealed the company was trading above its Graham Number of $49.68. The company pays a dividend of $0.95 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 26.01, which was above the industry average of 21.43.
Simmons First National Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Long-Term Debt & Capital Lease Obligation||$275,566,000|
|Shares Outstanding (Diluted Average)||30,828,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.99|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.42|
Other ModernGraham posts about the company
None. Â This is the first time ModernGraham has covered 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 be sure to review our detailed disclaimer.