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 – March 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 Customers Bancorp Inc (CUBI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Customers Bancorp, Inc. (Customers Bancorp) is a bank holding company engaged in banking activities through its subsidiary, Customers Bank (the Bank). The Company operates in the community banking segment. The Bank provides financial products and services to small and middle market businesses, not-for-profits, and consumers. The Bank also provides liquidity to the mortgage market nationwide through the operation of its loans to mortgage banking companies. It offers a range of traditional loan and deposit banking products, and financial services. The Bank offers a range of lending products, including small business loans, mortgage warehouse loans, multi-family and commercial real estate loans, residential mortgage loans and other consumer loans. It also offers traditional deposit products, including commercial and consumer checking accounts, non-interest-bearing demand accounts, money market deposit accounts, savings accounts and time deposit accounts, and cash management services.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of CUBI – March 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 | $1,003,171,787 | 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 | 94.04% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 16.21 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.16 | 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 | Fail | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.05 |
| MG Growth Estimate | 7.42% |
| MG Value | $47.79 |
| Opinion | Undervalued |
| MG Grade | D |
| MG Value based on 3% Growth | $29.70 |
| MG Value based on 0% Growth | $17.41 |
| Market Implied Growth Rate | 3.86% |
| Current Price | $33.20 |
| % of Intrinsic Value | 69.47% |
Customers Bancorp Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $1.37 in 2013 to an estimated $2.05 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.86% 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 Customers Bancorp Inc revealed the company was trading above its Graham Number of $32.59. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.21, 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.
Customers Bancorp Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Graham Number | $32.59 |
| PEmg | 16.21 |
| PB Ratio | 1.16 |
| 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 | 12/1/2016 |
| Long-Term Debt & Capital Lease Obligation | $1,064,706,000 |
| Total Assets | $9,382,736,000 |
| Intangible Assets | $3,639,000 |
| Total Liabilities | $8,526,864,000 |
| Shares Outstanding (Diluted Average) | 30,014,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.24 |
| Dec2016 | $2.31 |
| Dec2015 | $1.96 |
| Dec2014 | $1.55 |
| Dec2013 | $1.30 |
| Dec2012 | $1.57 |
| Dec2011 | $0.36 |
| Dec2010 | $3.36 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.05 |
| Dec2016 | $1.88 |
| Dec2015 | $1.56 |
| Dec2014 | $1.45 |
| Dec2013 | $1.37 |
| Dec2012 | $1.29 |
| Dec2011 | $1.01 |
| Dec2010 | $1.12 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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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