While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself. With that in mind, this article will take a brief look at the best companies of the banking industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.
Out of the approximately 540 companies reviewed by ModernGraham, 17 were identified as being closely related to the banking industry. Of those, six are suitable for the Defensive Investor, eleven are suitable for the Enterprising Investor, and none are considered speculative at this time. Excluding any extreme outliers, the average company was rated as being priced at 50.45% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 13.7. The industry as a whole, therefore would appear to be undervalued, particularly in comparison to the market (see Mr. Market’s Mental State).
The Elite
The following companies have been rated as undervalued and suitable for either the Defensive Investor or the Enterprising Investor:
Bank of America Corp (BAC)
Bank of America Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or 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 Undervalued after growing its EPSmg (normalized earnings) from $0.01 in 2012 to an estimated $0.92 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.02% 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.
Bank of America Corp receives an average overall rating in the ModernGraham grading system, scoring a C+. (See the full valuation)
Citigroup Inc (C)
Citigroup Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. 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 Undervalued after growing its EPSmg (normalized earnings) from $-2.31 in 2012 to an estimated $4.1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.16% 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.
Citigroup Inc performs fairly well in the ModernGraham grading system, scoring a B-. Â (See the full valuation)
Comerica Incorporated (CMA)
Comerica Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability 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 Undervalued after growing its EPSmg (normalized earnings) from $1.60 in 2012 to an estimated $2.90 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.42% 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.
Comerica Incorporated performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
Fifth Third Bancorp (FITB)
Fifth Third Bancorp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or 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 Undervalued after growing its EPSmg (normalized earnings) from $0.82 in 2012 to an estimated $1.74 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.75% 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.
Fifth Third Bancorp performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
