Banks Stocks

SVB Financial Group Valuation – Initial Coverage $SIVB

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.

SIVB Chart

SIVB 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.

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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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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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