Banks Stocks

Opus Bank Valuation – Initial Coverage $OPB

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 Undervalued Stocks for the Enterprising Investor – August 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 Opus Bank (OPB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Opus Bank is a commercial bank. The Company provides banking products, services and solutions to its clients through its Retail Bank, Commercial Bank, Merchant Bank, and Correspondent Bank. The Company’s Commercial Bank consists Commercial Banking, Business Banking, Healthcare Banking, Technology Banking, Fiduciary Banking, Institutional Syndications and Commercial Real Estate Banking (CREB), which includes Income Property Banking, its Structured Finance Group and Capital Markets Group. Through its Merchant Bank, the Company offers transaction support, and debt and equity capital to entrepreneurs, small and mid-sized business and middle-market companies. Through its Retail Bank, the Company provides banking solutions for small and mid-sized companies, entrepreneurs, real estate investors, professional and high net worth individuals. Through its Correspondent Bank, the Company offers loan and depository services to other financial institutions.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of OPB – August 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 $727,869,597 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 11866566.67% Pass
5. Moderate PEmg Ratio PEmg < 20 15.65 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.86 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.44
MG Growth Estimate -1.86%
MG Value $6.90
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $20.89
MG Value based on 0% Growth $12.25
Market Implied Growth Rate 3.58%
Current Price $22.55
% of Intrinsic Value 326.81%

Opus Bank 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 earnings growth over the last five years.  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 Overvalued after seeing its EPSmg (normalized earnings) decline from $1.64 in 2013 to an estimated $1.44 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 3.58% 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 Opus Bank revealed the company was trading below its Graham Number of $29.57.  The company pays a dividend of $0.53 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 15.65, 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.

Opus Bank receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $29.57
PEmg 15.65
PB Ratio 0.86
Dividend Yield 2.35%
TTM Dividend $0.53
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Long-Term Debt & Capital Lease Obligation $197,479,000
Total Assets $7,882,563,000
Intangible Assets $382,550,000
Total Liabilities $6,956,628,000
Shares Outstanding (Diluted Average) 35,513,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.44
Dec2016 $0.33
Dec2015 $1.79
Dec2014 $1.38
Dec2013 $4.96
Dec2012 $0.79
Dec2011 -$1.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.44
Dec2016 $1.58
Dec2015 $1.99
Dec2014 $1.79
Dec2013 $1.64
Dec2012 -$0.03
Dec2011 -$0.37

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company. None.  This is the first time ModernGraham has covered the company.

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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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