According to the Undervalued-Predictable Screener, a Premium feature of GuruFocus, five bank stocks with high business predictability and are undervalued based on the discounted cash flow model are BOK Financial Corp. (BOKF, Financial), FS Bancorp Inc. (FSBW, Financial), Bank of Montreal (BMO, Financial), Grupo Aval Acciones y Valores SA (AVAL, Financial) and East West Bancorp Inc. (EWBC, Financial).
On Friday, the Dow Jones Industrial Average closed at 31,909.64, down 345.22 points from the previous close of 32,254.86.
Each of the U.S. market indexes finished the week lower by more than 4%, led by bank shares following the collapse of Silicon Valley Bank, a business segment of SVB Financial Corp (SIVB).
In light of bank shares tumbling during the week, GuruFocus’ Undervalued-Predictable Screener listed several bank stocks that have a business predictability rank of at least four stars and high margin of safety based on the discounted cash flow model. By default, the discounted cash flow model starts with trailing 12-month earnings per share as base-year earnings and considers 10 years of growth at the 10-year earnings growth rate, followed by 10 years of terminal growth at 4%. The discount rate used is the 10-year Treasury constant maturity rate plus a 6% risk-free premium.
BOK Financial
Shares of BOK Financial (BOKF, Financial) traded around $95.83, showing the stock is fairly valued based on its price-to-GF Value ratio of 0.99 as of Friday.
Based on the discounted cash flow model, the Tulsa, Oklahoma-based bank has a margin of safety of 89.81% assuming a base-year free cash flow of $75.31 per share, 10-year free cash flow growth of 5% and the default DCF Calculator parameters for discount rate and terminal growth rates.
BOK Financial has a GF Score of 80 out of 100 based on a momentum rank of 10 out of 10, a growth rank of 8 out of 10, a profitability rank of 6 out of 10, a GF Value rank of 5 out of 10 and a financial strength rank of 3 out of 10.
The company’s profitability ranks 6 out of 10 on the back of a five-star business predictability rank and a return on assets that outperforms approximately 60% of global competitors.
FS Bancorp
Shares of FS Bancorp (FSBW, Financial) traded around $32.36, showing the stock is fairly valued based on its price-to-GF Value ratio of 0.95 as of Friday.
Based on the discounted cash flow model, the Mountlake Terrace, Washington-based bank has a margin of safety of 74.15% assuming base-year earnings of $3.69 per share and a 10-year earnings growth rate of 20%.
FS Bancorp has a GF Score of 80 out of 100 based on a growth rank of 9 out of 10, a GF Value rank of 5 out of 10, a financial strength rank of 3 out of 10 and a rank of 6 out of 10 for profitability and momentum.
The company’s profitability ranks 6 out of 10 on the backof a four-star business predictability rank and a return on equity that outperforms approximately 66% of global competitors.
Bank of Montreal
Shares of Bank of Montreal (BMO, Financial) traded around $88.39, showing the stock is fairly valued based on its price-to-GF Value ratio of 0.91 as of Friday.
Based on the discounted cash flow model, the Montreal-based bank has a margin of safety of 55.97% assuming base-year earnings of $12.13 per share and 10-year earnings growth of 9.2%.
Bank of Montreal has a GF Score of 75 out of 100 based on a momentum rank of 7 out of 10, a GF Value rank of 5 out of 10, a financial strength rank of 3 out of 10 and a rank of 6 out of 10 for profitability and growth.
The company has a five-star business predictability rank and a net profit margin that outperforms approximately 84% of global competitors. Despite this, Bank of Montreal’s profitability ranks 6 out of 10 on the back of returns on assets outperforming approximately 51% of global banks.
Grupo Aval
Shares of Grupo Aval (AVAL, Financial) traded around $2.29, showing the stock is significantly undervalued based on its price-to-GF Value ratio of 0.59 as of Friday.
Based on the discounted cash flow model, the Columbian bank has a margin of safety of 53.46% assuming base-year earnings of 37 cents per share and a 10-year earnings growth rate of 5.9%.
Grupo Aval has a GF Score of 74 out of 100 based on a rank of 8 out of 10 for growth and GF Value, a profitability rank of 6 out of 10, a financial strength rank of 3 out of 10 and a momentum rank of 2 out of 10.
The company has a 4.5-star business predictability rank and a return on equity that outperforms approximately 89% of global competitors. Despite this, Grupo Aval’s profitability ranks 6 out of 10 on the back of net profit margins underperforming more than 70% of global banks.
East West Bancorp
Shares of East West Bancorp (EWBC, Financial) traded around $62.71, showing the stock is significantly undervalued based on its price-to-GF Value ratio of 0.70 as of Friday.
Based on the discounted cash flow model, the Pasadena, California-based bank has a margin of safety of 85.42% assuming base-year free cash flow of $14.52 per share and 10-year free cash flow growth of 17.8%.
East West Bancorp has a GF Score of 90 out of 100 based on a growth rank of 10 out of 10, a momentum rank of 8 out of 10, a financial strength rank of 5 out of 10 and a rank of 7 out of 10 for GF Value and profitability.
The company’s growth ranks 10 out of 10 on several positive investing signs, which include a five-star business predictability rank and a three-year revenue growth rate that outperforms approximately 77% of global competitors.
