Banks Stocks

BB&T Corporation Valuation – April 2018 $BBT

Company Profile (excerpt from Reuters): BB&T Corporation, incorporated on September 24, 1968, is a financial holding company. The Company conducts its business operations primarily through its bank subsidiary, Branch Banking and Trust Company (Branch Bank), and other nonbank subsidiaries. Its segments include Community Banking, Residential Mortgage Banking, Dealer Financial Services, Specialized Lending, Insurance Holdings and Financial Services. Branch Bank provided a range of banking and trust services for retail and commercial clients in its geographic markets, including small and mid-size businesses, public agencies, local governments and individuals, through 2,196 offices, as of December 31, 2016. Its subsidiaries offer a variety of services targeted to retail and commercial clients. Its insurance operations primarily consist of a wholesale/agency network. Its retail services include asset management, automobile lending, bankcard lending, consumer finance, home equity lending, home mortgage lending, insurance, investment brokerage services, payment solutions and sales finance, among others. Its commercial services include asset management, association services, capital market services, commercial deposit services, commercial finance, corporate banking, floor plan lending, insurance, merchant services, real estate lending and payment solutions, among others.

BBT Chart

BBT data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BBT – April 2018

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 $40,058,795,762 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 123.19% Pass
5. Moderate PEmg Ratio PEmg < 20 16.60 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.36 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 $3.05
MG Growth Estimate 4.46%
MG Value $53.12
Opinion Fairly Valued
MG Grade A-
MG Value based on 3% Growth $44.23
MG Value based on 0% Growth $25.93
Market Implied Growth Rate 4.05%
Current Price $50.63
% of Intrinsic Value 95.32%

BB&T Corporation 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 $2.35 in 2014 to an estimated $3.05 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.05% 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 BB&T Corporation revealed the company was trading below its Graham Number of $53.42. The company pays a dividend of $1.26 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.6, which was below the industry average of 22.06, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

BB&T Corporation fares extremely well in the ModernGraham grading system, scoring an A-.

Stage 3: Information for Further Research

Graham Number $53.42
PEmg 16.60
PB Ratio 1.36
Dividend Yield 2.49%
TTM Dividend $1.26
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $23,648,000,000
Total Assets $221,642,000,000
Intangible Assets $11,385,000,000
Total Liabilities $191,994,000,000
Shares Outstanding (Diluted Average) 795,821,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.73
Dec2017 $2.74
Dec2016 $2.77
Dec2015 $2.56
Dec2014 $2.72
Dec2013 $2.19
Dec2012 $2.70
Dec2011 $1.83
Dec2010 $1.16
Dec2009 $1.15
Dec2008 $2.71
Dec2007 $3.14
Dec2006 $2.81
Dec2005 $3.00
Dec2004 $2.80
Dec2003 $2.07
Dec2002 $2.72
Dec2001 $2.12
Dec2000 $1.53
Dec1999 $1.71
Dec1998 $1.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.05
Dec2017 $2.67
Dec2016 $2.62
Dec2015 $2.50
Dec2014 $2.35
Dec2013 $2.05
Dec2012 $1.95
Dec2011 $1.72
Dec2010 $1.84
Dec2009 $2.31
Dec2008 $2.89
Dec2007 $2.91
Dec2006 $2.75
Dec2005 $2.66
Dec2004 $2.41
Dec2003 $2.16
Dec2002 $2.11

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks to Invest In: the Bank Industry – August 2016
10 Best Stocks For Value Investors This Week – 5/21/16
BB&T Corporation Valuation – May 2016 $BBT
11 Best Stocks For Value Investors This Week – 11/21/15
BB&T Corporation Valuation – November 2015 Update $BBT

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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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