CVB Financial Corp Valuation – Initial Coverage $CVBF

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 CVB Financial Corp (CVBF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CVB Financial Corp. is the bank holding company for Citizens Business Bank (the Bank). The Bank’s segments include Business Financial and Commercial Banking Centers (Centers), Treasury and Others. The Company’s all administrative and other smaller operating departments are combined into the Other segment. Its remaining operating segments, which include construction lending, dairy and livestock, and agribusiness lending, leasing, CitizensTrust and centralized functions, form part of the Other segment. The Treasury Department’s primary focus is managing the Bank’s investments, liquidity and interest rate risk. The Bank operates approximately 40 Business Financial Centers, eight Commercial Banking Centers, and three trust offices. Its trust offices are located in Ontario, Newport Beach and Pasadena. These offices serve as sales offices for the Bank’s wealth management, trust and investment products. The Company also offers specialized services designed for commercial customers.

CVBF Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CVBF – 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 $2,597,067,842 Pass
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 50.00% Pass
5. Moderate PEmg Ratio PEmg < 20 24.75 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 Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.95
MG Growth Estimate 3.58%
MG Value $14.95
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $13.84
MG Value based on 0% Growth $8.11
Market Implied Growth Rate 8.14%
Current Price $23.66
% of Intrinsic Value 158.23%

CVB Financial Corp. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. 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 $0.77 in 2013 to an estimated $0.95 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.14% 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 CVB Financial Corp. revealed the company was trading above its Graham Number of $14.21. The company pays a dividend of $0.48 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 24.78, which was above the industry average of 21.43.

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

Stage 3: Information for Further Research

Graham Number $14.21
PEmg 24.78
PB Ratio 2.57
Dividend Yield 2.03%
TTM Dividend $0.48
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $78,774,000
Total Assets $8,073,707,000
Intangible Assets $94,543,000
Total Liabilities $7,082,845,000
Shares Outstanding (Diluted Average) 107,687,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.98
Dec2016 $0.94
Dec2015 $0.93
Dec2014 $0.98
Dec2013 $0.91
Dec2012 $0.74
Dec2011 $0.77
Dec2010 $0.59
Dec2009 $0.56
Dec2008 $0.75
Dec2007 $0.72
Dec2006 $0.83
Dec2005 $0.83
Dec2004 $0.73
Dec2003 $0.63
Dec2002 $0.59
Dec2001 $0.48
Dec2000 $0.42
Dec1999 $0.32
Dec1998 $0.29
Dec1997 $0.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.95
Dec2016 $0.93
Dec2015 $0.90
Dec2014 $0.86
Dec2013 $0.77
Dec2012 $0.69
Dec2011 $0.67
Dec2010 $0.65
Dec2009 $0.70
Dec2008 $0.77
Dec2007 $0.77
Dec2006 $0.77
Dec2005 $0.71
Dec2004 $0.62
Dec2003 $0.54
Dec2002 $0.47
Dec2001 $0.39

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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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