Banks Stocks

SVB Financial Group Valuation – March 2019 #SIVB

Company Profile (excerpt from Reuters): SVB Financial Group (SVB Financial), incorporated on March 22, 1999, is a diversified financial services company, as well as a bank holding and a financial holding company. The Company operates through three segments: Global Commercial Bank, SVB Private Bank and SVB Capital. The Company, through its subsidiaries and divisions, offers a range of banking and financial products and services to clients across the United States. The Company offers services in the technology, life science/healthcare, private equity/venture capital and wine industries.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SIVB – March 2019

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 $12,930,426,391 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 361.84% Pass
5. Moderate PEmg Ratio PEmg < 20 16.91 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.50 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 $14.52
MG Growth Estimate 15.00%
MG Value $558.84
Opinion Undervalued
MG Grade D+
MG Value based on 3% Growth $210.47
MG Value based on 0% Growth $123.38
Market Implied Growth Rate 4.21%
Current Price $245.49
% of Intrinsic Value 43.93%

SVB Financial Group 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 $5.34 in 2015 to an estimated $14.52 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.21% 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 SVB Financial Group revealed the company was trading above its Graham Number of $205.49. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 16.91, which was above the industry average of 16.75.

SVB Financial Group scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Graham Number $205.49
PEmg 16.91
PB Ratio 2.50
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Long-Term Debt & Capital Lease Obligation $696,465,000
Total Assets $56,927,979,000
Intangible Assets $0
Total Liabilities $51,663,136,000
Shares Outstanding (Diluted Average) 53,688,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $19.29
Dec2018 $18.11
Dec2017 $9.20
Dec2016 $7.31
Dec2015 $6.62
Dec2014 $5.31
Dec2013 $4.67
Dec2012 $3.91
Dec2011 $3.94
Dec2010 $2.24
Dec2009 $0.66
Dec2008 $2.16
Dec2007 $3.37
Dec2006 $2.38
Dec2005 $2.40
Dec2004 $1.70
Dec2003 $0.35
Dec2002 $1.21
Dec2001 $1.79
Dec2000 $3.23
Dec1999 $1.23

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $14.52
Dec2018 $11.19
Dec2017 $7.36
Dec2016 $6.15
Dec2015 $5.34
Dec2014 $4.47
Dec2013 $3.73
Dec2012 $3.03
Dec2011 $2.56
Dec2010 $1.96
Dec2009 $1.95
Dec2008 $2.53
Dec2007 $2.49
Dec2006 $1.90
Dec2005 $1.60
Dec2004 $1.36
Dec2003 $1.31

Recommended Reading:

Other ModernGraham posts about the company

SVB Financial Group Valuation – June 2018 $SIVB
SVB Financial Group Valuation – Initial Coverage $SIVB

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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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