Cullen/Frost Bankers Inc Valuation – July 2018 $CFR

Company Profile (excerpt from Reuters): Cullen/Frost Bankers, Inc., incorporated on January 25, 1966, is a financial holding company and a bank holding company. The Company, through its subsidiaries, provides a range of products and services throughout Texas markets. The Company’s segments include Banking, Frost Wealth Advisors and Non-Banks. The Banking segment includes both commercial and consumer banking services, and Frost Insurance Agency. Commercial banking services are provided to corporations and other business clients and include a range of lending and cash management products. Consumer banking services include direct lending and depository services. Frost Insurance Agency provides insurance brokerage services to individuals and businesses covering corporate and personal property and casualty products, as well as group health and life insurance products and human resources consulting services. The Frost Wealth Advisors segment includes fee-based services within private trust, retirement services, and financial management services, including personal wealth management and securities brokerage services. The Non-Banks segment includes the direct and indirect ownership of its banking and non-banking subsidiaries and the issuance of debt and equity.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CFR – 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 $7,231,845,441 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 66.93% Pass
5. Moderate PEmg Ratio PEmg < 20 21.01 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.27 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 $5.42
MG Growth Estimate 5.74%
MG Value $108.23
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $78.53
MG Value based on 0% Growth $46.04
Market Implied Growth Rate 6.25%
Current Price $113.78
% of Intrinsic Value 105.12%

Cullen/Frost Bankers, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with 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 Fairly Valued after growing its EPSmg (normalized earnings) from $3.92 in 2014 to an estimated $5.42 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 6.25% 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 Cullen/Frost Bankers, Inc. revealed the company was trading above its Graham Number of $84.91. The company pays a dividend of $2.25 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 21.01, which was above the industry average of 20.05.

Cullen/Frost Bankers, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $84.91
PEmg 21.01
PB Ratio 2.27
Dividend Yield 1.98%
TTM Dividend $2.25
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $234,789,000
Total Assets $31,459,232,000
Intangible Assets $659,637,000
Total Liabilities $28,215,802,000
Shares Outstanding (Diluted Average) 64,662,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.45
Dec2017 $5.51
Dec2016 $4.70
Dec2015 $4.28
Dec2014 $4.29
Dec2013 $3.80
Dec2012 $3.86
Dec2011 $3.54
Dec2010 $3.44
Dec2009 $3.00
Dec2008 $3.50
Dec2007 $3.55
Dec2006 $3.42
Dec2005 $3.07
Dec2004 $2.66
Dec2003 $2.48
Dec2002 $2.29
Dec2001 $1.57
Dec2000 $2.03
Dec1999 $1.78
Dec1998 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.42
Dec2017 $4.77
Dec2016 $4.33
Dec2015 $4.08
Dec2014 $3.92
Dec2013 $3.66
Dec2012 $3.55
Dec2011 $3.40
Dec2010 $3.35
Dec2009 $3.30
Dec2008 $3.38
Dec2007 $3.23
Dec2006 $2.97
Dec2005 $2.64
Dec2004 $2.35
Dec2003 $2.14
Dec2002 $1.92

Recommended Reading:

Other ModernGraham posts about the company

Cullen/Frost Bankers Inc Valuation – Initial Coverage $CFR

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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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