Central Pacific Financial Corp Valuation – Initial Coverage $CPF

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 – February 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 Central Pacific Financial Corp (CPF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Central Pacific Financial Corp. serves as the bank holding company for its bank subsidiary, Central Pacific Bank (the bank). The Company’s segments include Banking Operations, Treasury and All Others. The Banking Operations segment includes construction and commercial real estate lending, commercial lending, residential mortgage lending, consumer lending, trust services, retail brokerage services, and the Company’s retail branch offices, which provide a range of deposit and loan products, as well as various other banking services. The Treasury segment is responsible for managing the Company’s investment securities portfolio and wholesale funding activities. The All Others segment includes activities, such as electronic banking, data processing and management of bank owned properties. The Company provides an array of loan products, including residential mortgage loans commercial and consumer loans and lines of credit commercial real estate loans and construction loans.

CPF Chart

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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 CPF – February 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 $997,716,010 Fail
2. Earnings Stability Positive EPS for 10 years prior Fail
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 -101.09% Fail
5. Moderate PEmg Ratio PEmg < 20 19.94 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.94 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 $1.58
MG Growth Estimate 15.00%
MG Value $60.98
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $22.97
MG Value based on 0% Growth $13.46
Market Implied Growth Rate 5.72%
Current Price $31.59
% of Intrinsic Value 51.80%

Central Pacific Financial Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $-31.16 in 2013 to an estimated $1.58 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.72% 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 above the price.

At the time of valuation, further research into Central Pacific Financial Corp. revealed the company was trading above its Graham Number of $23.27. The company pays a dividend of $0.6 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 19.94, which was below the industry average of 21.43, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Central Pacific Financial Corp. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $23.27
PEmg 19.94
PB Ratio 1.94
Dividend Yield 1.90%
TTM Dividend $0.60
Number of Consecutive Years of Dividend Growth 5


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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $92,785,000
Total Assets $5,384,236,000
Intangible Assets $20,459,000
Total Liabilities $4,879,586,000
Shares Outstanding (Diluted Average) 31,001,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.47
Dec2016 $1.50
Dec2015 $1.40
Dec2014 $1.07
Dec2013 $4.07
Dec2012 $1.13
Dec2011 $3.31
Dec2010 -$171.13
Dec2009 -$159.89
Dec2008 -$70.03
Dec2007 $2.76
Dec2006 $37.26
Dec2005 $34.51
Dec2004 $27.11
Dec2003 $30.01
Dec2002 $29.58
Dec2001 $24.94
Dec2000 $15.51
Dec1999 $12.18
Dec1998 $10.51
Dec1997 $10.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.58
Dec2016 $1.71
Dec2015 $1.94
Dec2014 -$9.30
Dec2013 -$31.16
Dec2012 -$58.95
Dec2011 -$85.66
Dec2010 -$110.84
Dec2009 -$64.15
Dec2008 -$8.75
Dec2007 $23.37
Dec2006 $33.02
Dec2005 $30.34
Dec2004 $27.32
Dec2003 $25.76
Dec2002 $21.94
Dec2001 $16.96

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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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