Banks Stocks

Texas Capital Banchares Inc Valuation – Initial Coverage $TCBI

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 Texas Capital Bancshares Inc (TCBI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Texas Capital Bancshares, Inc. is a bank holding and a financial holding company. The Company is the parent of Texas Capital Bank, National Association (the Bank). It offers a range of loan, deposit account and other financial products and services to its customers. It offers a range of products and services for its business customers, including commercial loans for general corporate purposes, including financing for working capital, internal growth, acquisitions and financing for business insurance premiums; medium- and long-term tax-exempt loans for municipalities and other governmental and tax-exempt entities; wealth management and trust services, and letters of credit. It also provides banking services for its individual customers, including personal wealth management and trust services; certificates of deposit; interest-bearing and non-interest-bearing checking accounts; traditional money market and savings accounts; loans, both secured and unsecured, and Internet banking.

TCBI Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TCBI – 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 $3,981,969,488 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 304.13% Pass
5. Moderate PEmg Ratio PEmg < 20 24.78 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.86 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 $3.23
MG Growth Estimate 6.32%
MG Value $68.27
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $46.84
MG Value based on 0% Growth $27.46
Market Implied Growth Rate 8.14%
Current Price $80.05
% of Intrinsic Value 117.25%

Texas Capital Bancshares Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg ratio. 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 $2.27 in 2013 to an estimated $3.23 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 Texas Capital Bancshares Inc revealed the company was trading above its Graham Number of $56.38. The company pays a dividend of $0.81 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 24.78, which was above the industry average of 20.84.

Texas Capital Bancshares Inc receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $56.38
PEmg 24.78
PB Ratio 1.86
Dividend Yield 1.01%
TTM Dividend $0.81
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $2,394,450,000
Total Assets $21,697,134,000
Intangible Assets $48,048,000
Total Liabilities $19,687,577,000
Shares Outstanding (Diluted Average) 46,766,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.76
Dec2016 $3.11
Dec2015 $2.91
Dec2014 $2.88
Dec2013 $2.72
Dec2012 $3.00
Dec2011 $1.98
Dec2010 $1.00
Dec2009 $0.55
Dec2008 $0.87
Dec2007 $1.10
Dec2006 $1.09
Dec2005 $1.02
Dec2004 $0.77
Dec2003 $0.60
Dec2002 $0.32
Dec2001 $0.30
Dec2000 -$1.89
Dec1999 -$1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.23
Dec2016 $2.95
Dec2015 $2.81
Dec2014 $2.62
Dec2013 $2.27
Dec2012 $1.86
Dec2011 $1.23
Dec2010 $0.87
Dec2009 $0.85
Dec2008 $0.99
Dec2007 $1.00
Dec2006 $0.89
Dec2005 $0.73
Dec2004 $0.39
Dec2003 $0.01
Dec2002 -$0.36
Dec2001 -$0.65

Recommended Reading:

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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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