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 – January 2017. 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 SVB Financial Group (SIVB) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): SVB Financial Group (SVB Financial) is a diversified financial services, bank holding and financial holding company. The Company operates through three segments: Global Commercial Bank, SVB Private Bank and SVB Capital. The Global Commercial Bank segment consists of the operations of its Commercial Bank, and of SVB Wine, SVB Analytics and its Debt Fund Investments. SVB Private Bank is the private banking division of the Bank, which provides a range of personal financial solutions for consumers. SVB Capital is the venture capital investment arm of SVB Financial Group, which focuses primarily on funds management. The Company, through its subsidiaries and divisions, offers a range of banking and financial products and services to clients across the United States, as well as in international entrepreneurial markets. The Company offers services in the technology, life science/healthcare, private equity/venture capital and wine industries.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SIVB – January 2017
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 | $9,250,132,270 | Pass | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 206.79% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 29.02 | Fail | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.57 | Fail | |
| 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 | Fail | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $6.06 |
| MG Growth Estimate | 14.98% |
| MG Value | $233.22 |
| Opinion | Fairly Valued |
| MG Grade | F |
| MG Value based on 3% Growth | $87.93 |
| MG Value based on 0% Growth | $51.54 |
| Market Implied Growth Rate | 10.26% |
| Current Price | $175.95 |
| % of Intrinsic Value | 75.44% |
SVB Financial Group does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.03 in 2012 to an estimated $6.06 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 10.26% 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 within a margin of safety relative to the price.
At the time of valuation, further research into SVB Financial Group revealed the company was trading above its Graham Number of $104.71. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 29.02, which was above the industry average of 21.43.
SVB Financial Group scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Graham Number | $104.71 |
| PEmg | 29.02 |
| PB Ratio | 2.57 |
| Dividend Yield | 0.00% |
| TTM Dividend | $0.00 |
| Number of Consecutive Years of Dividend Growth | 0 |
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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 | $795,971,000 |
| Total Assets | $43,274,037,000 |
| Intangible Assets | $0 |
| Total Liabilities | $39,680,986,000 |
| Shares Outstanding (Diluted Average) | 52,413,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $7.06 |
| Dec2015 | $6.62 |
| Dec2014 | $5.31 |
| Dec2013 | $4.67 |
| Dec2012 | $3.91 |
| Dec2011 | $3.94 |
| Dec2010 | $2.24 |
| Dec2009 | $0.66 |
| Dec2008 | $2.16 |
| Dec2007 | $3.37 |
| Dec2006 | $2.38 |
| Dec2005 | $2.40 |
| Dec2004 | $1.70 |
| Dec2003 | $0.35 |
| Dec2002 | $1.21 |
| Dec2001 | $1.79 |
| Dec2000 | $3.23 |
| Dec1999 | $1.23 |
| Dec1998 | $0.69 |
| Dec1997 | $0.68 |
| Dec1996 | $0.55 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $6.06 |
| Dec2015 | $5.34 |
| Dec2014 | $4.47 |
| Dec2013 | $3.73 |
| Dec2012 | $3.03 |
| Dec2011 | $2.56 |
| Dec2010 | $1.96 |
| Dec2009 | $1.95 |
| Dec2008 | $2.53 |
| Dec2007 | $2.49 |
| Dec2006 | $1.90 |
| Dec2005 | $1.60 |
| Dec2004 | $1.36 |
| Dec2003 | $1.31 |
| Dec2002 | $1.74 |
| Dec2001 | $1.84 |
| Dec2000 | $1.67 |
Recommended Reading:
Other ModernGraham posts about the company
None. 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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