Southside Bancshares Inc Valuation – July 2018 $SBSI

Company Profile (excerpt from Reuters): Southside Bancshares, Inc., incorporated on August 11, 1982, is a bank holding company for Southside Bank (the Bank). The Company is a community-focused financial institution that offers a range of financial services to individuals, businesses, municipal entities, and nonprofit organizations in the communities. These services include consumer and commercial loans, deposit accounts, trust services, safe deposit services and brokerage services. As of December 31, 2016, the Company operated through 60 banking centers, 17 of which are located in grocery stores.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SBSI – July 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 $1,241,781,007 Fail
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 4.24% Fail
5. Moderate PEmg Ratio PEmg < 20 18.86 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.68 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 $1.89
MG Growth Estimate 3.59%
MG Value $29.65
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $27.41
MG Value based on 0% Growth $16.07
Market Implied Growth Rate 5.18%
Current Price $35.66
% of Intrinsic Value 120.27%

Southside Bancshares, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings growth over the last ten years. 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 $1.53 in 2014 to an estimated $1.89 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.18% 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 Southside Bancshares, Inc. revealed the company was trading above its Graham Number of $33.39. The company pays a dividend of $1.08 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 18.86, which was below the industry average of 20.05, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Southside Bancshares, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Graham Number $33.39
PEmg 18.86
PB Ratio 1.68
Dividend Yield 3.02%
TTM Dividend $1.08
Number of Consecutive Years of Dividend Growth 13

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $870,451,000
Total Assets $6,373,197,000
Intangible Assets $222,861,000
Total Liabilities $5,626,801,000
Shares Outstanding (Diluted Average) 35,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.30
Dec2017 $1.81
Dec2016 $1.81
Dec2015 $1.61
Dec2014 $0.97
Dec2013 $1.94
Dec2012 $1.61
Dec2011 $1.82
Dec2010 $1.81
Dec2009 $2.05
Dec2008 $1.43
Dec2007 $0.78
Dec2006 $0.70
Dec2005 $0.69
Dec2004 $0.75
Dec2003 $0.66
Dec2002 $0.66
Dec2001 $0.59
Dec2000 $0.55
Dec1999 $0.45
Dec1998 $0.28

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.89
Dec2017 $1.67
Dec2016 $1.59
Dec2015 $1.52
Dec2014 $1.53
Dec2013 $1.82
Dec2012 $1.75
Dec2011 $1.74
Dec2010 $1.59
Dec2009 $1.36
Dec2008 $0.97
Dec2007 $0.73
Dec2006 $0.70
Dec2005 $0.69
Dec2004 $0.68
Dec2003 $0.62
Dec2002 $0.57

Recommended Reading:

Other ModernGraham posts about the company

Southside Bancshares Inc Valuation – Initial Coverage $SBSI

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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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