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 Old National Bancorp (ONB) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Old National Bancorp is a financial holding company. The Company, through its banking subsidiary, provides a range of services, including commercial and consumer loan and depository services, private banking, brokerage, trust, investment advisory and other traditional banking services. The Company focuses on community banking. The Company’s banking segment operates through its subsidiary, Old National Bank. As of December 31, 2016, Old National Bank operated approximately 203 banking centers located in Indiana, Kentucky, Michigan and Wisconsin. As of December 31, 2016, Old National Bank leased 81 banking centers from unaffiliated third parties. Each of the branches of Old National Bank provide a group of similar community banking services, including products and services, such as commercial, real estate and consumer loans, time deposits, checking and savings accounts, cash management, brokerage, trust and investment advisory services.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass all 6 of the following tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$2,275,268,310||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||104.58%||Pass|
|5. Moderate PEmg Ratio||PEmg < 20||16.21||Pass|
|6. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.23||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
|MG Growth Estimate||4.21%|
|MG Value based on 3% Growth||$14.98|
|MG Value based on 0% Growth||$8.78|
|Market Implied Growth Rate||3.85%|
|% of Intrinsic Value||95.75%|
Old National Bancorp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.81 in 2013 to an estimated $1.03 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 3.85% 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 Old National Bancorp revealed the company was trading below its Graham Number of $18.06. The company pays a dividend of $0.52 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.21, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Old National Bancorp performs fairly well in the ModernGraham grading system, scoring a B+.
Stage 3: Information for Further Research
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2017|
|Long-Term Debt & Capital Lease Obligation||$1,660,051,000|
|Shares Outstanding (Diluted Average)||135,431,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.08|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.03|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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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.