Banks Stocks

Signature Bank Valuation – July 2018 $SBNY

Company Profile (excerpt from Reuters): Signature Bank, incorporated in September 2000, is a full-service commercial bank. The Bank operates over 30 private client offices throughout the New York metropolitan area. Its segments include Commercial Banking and Specialty Finance. The Bank offers a range of business and personal banking products and services. Its specialty finance subsidiary, Signature Financial LLC (Signature Financial), provides equipment finance and leasing services. Signature Securities Group Corporation (Signature Securities), a subsidiary of Bank, is a licensed broker-dealer, investment advisor offering investment, brokerage, asset management and insurance products and services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SBNY – 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 $6,501,390,093 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
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 222.02% Pass
5. Moderate PEmg Ratio PEmg < 20 15.28 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 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 Fail
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.56
MG Growth Estimate 9.40%
MG Value $206.50
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $109.65
MG Value based on 0% Growth $64.28
Market Implied Growth Rate 3.39%
Current Price $115.56
% of Intrinsic Value 55.96%

Signature Bank does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history. The Enterprising Investor has concerns regarding the lack of dividends. 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 Undervalued after growing its EPSmg (normalized earnings) from $4.65 in 2014 to an estimated $7.56 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.39% 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 above the price.

At the time of valuation, further research into Signature Bank revealed the company was trading below its Graham Number of $118.23. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 15.28, 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.

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

Stage 3: Information for Further Research

Graham Number $118.23
PEmg 15.28
PB Ratio 1.57
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Long-Term Debt & Capital Lease Obligation $4,542,577,000
Total Assets $44,435,634,000
Intangible Assets $0
Total Liabilities $40,434,462,000
Shares Outstanding (Diluted Average) 54,395,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.47
Dec2017 $7.12
Dec2016 $7.37
Dec2015 $7.27
Dec2014 $5.95
Dec2013 $4.76
Dec2012 $3.91
Dec2011 $3.37
Dec2010 $2.46
Dec2009 $1.30
Dec2008 $1.35
Dec2007 $0.91
Dec2006 $1.12
Dec2005 $0.53
Dec2004 $1.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.56
Dec2017 $6.90
Dec2016 $6.48
Dec2015 $5.71
Dec2014 $4.65
Dec2013 $3.72
Dec2012 $2.96
Dec2011 $2.28
Dec2010 $1.63
Dec2009 $1.16
Dec2008 $1.06
Dec2007 $0.86
Dec2006 $0.74
Dec2005 $0.48
Dec2004 $0.38

Recommended Reading:

Other ModernGraham posts about the company

Signature Bank Valuation – Initial Coverage $SBNY

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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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