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, 11 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, Financial)
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) from1 cent in 2012, to an estimated 92 cents 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, Financial)
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-. (See the full valuation)
Comerica Inc. (CMA, Financial)
Comerica Inc. 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, Financial)
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 82 cents 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)
Huntington Bancshares Inc. (HBAN, Financial)
Huntington Bancshares 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. 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 -42 cents in 2012, to an estimated 77 cents for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.37% 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.
Huntington Bancshares Incorporated performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
JPMorgan Chase & Co. (JPM, Financial)
JPMorgan Chase & Co. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value 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 $4.11 in 2012, to an estimated $5.4 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.68% 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.
JPMorgan Chase & Co. performs fairly well in the ModernGraham grading system, scoring a B+. (See the full valuation)
KeyCorp (KEY, Financial)
KeyCorp 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 eight cents in 2012, to an estimated $1 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.27% 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.
KeyCorp performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
People's United Financial Inc. (PBCT, Financial)
People’s United Financial Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value 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 51 cents in 2012, to an estimated 83 cents for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.97% 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.
People’s United Financial, Inc. performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
PNC Financial Services Group Inc. (PNC, Financial)
PNC Financial Services Group Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has no initial concerns. As a result, all value 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 $5.16 in 2012, to an estimated $7.04 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.57% 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.
PNC Financial Services Group Inc performs fairly well in the ModernGraham grading system, scoring a B+. (See the full valuation)
Regions Financial Corp. (RF, Financial)
Regions Financial 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 -69 cents in 2012, to an estimated 77 cents for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.31% 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.
Regions Financial Corp performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
SunTrust Banks Inc. (STI)
SunTrust Banks Inc. 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 $1.02 in 2012, to an estimated $3.23 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.08% 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.
SunTrust Banks, Inc. performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
State Street Corp. (STT)
State Street Corp. 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 $2.74 in 2012, to an estimated $4.45 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.93% 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.
State Street Corp performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
U.S. Bancorp (USB)
U.S. Bancorp qualifies for both the Enterprising Investor and the more conservative Defensive Investor. In fact, the company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.19 in 2011, to an estimated $3.13 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.06% 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. (See the full valuation)
Wells Fargo & Co. (WFC)
Wells Fargo & Co. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value 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 $2.59 in 2012, to an estimated $3.93 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.56% 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.
Wells Fargo & Co. performs fairly well in the ModernGraham grading system, scoring a B+. (See the full valuation)
Zions Bancorp (ZION)
Zions 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 -$1.45 in 2012, to an estimated $1.46 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.8% 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.
Zions Bancorp receives an average overall rating in the ModernGraham grading system, scoring a C+. (See the full valuation)
The Good
The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:
BB&T Corp. (BBT, Financial)
BB&T Corp. is suitable for the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years. The Enterprising Investor has no 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 $1.95 in 2012, to an estimated $2.56 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.36% 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.
BB&T Corp. fares extremely well in the ModernGraham grading system, scoring an A-. (See the full valuation)
M&T Bank Corp. (MTB, Financial)
M&T Bank Corp. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value 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 $6.06 in 2012, to an estimated $7.54 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.34% 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.
M&T Bank Corp. performs fairly well in the ModernGraham grading system, scoring a B. (See the full valuation)
The Full List
For the investor type, a "D" indicates the company is suitable for the Defensive Investor, an "E" indicates the company is suitable for the Enterprising Investor and an "S" indicates the company is considered speculative at this time.
| Ticker | Name with Link | Investor Type | Latest Valuation Date | MG Value | Recent Price | Price as a percent of Value | PEmg Ratio | Div. Yield |
| BAC | Bank of America Corp | E | 7/14/2016 | --- | $14.40 | --- | --- | 1.39% |
| BBT | BB&T Corporation | E | 5/17/2016 | --- | $37.13 | --- | --- | 2.91% |
| C | Citigroup Inc | E | 7/19/2016 | --- | $43.97 | --- | --- | 0.45% |
| CMA | Comerica Incorporated | E | 2/15/2016 | --- | $44.78 | --- | --- | 1.88% |
| FITB | Fifth Third Bancorp | E | 7/2/2016 | --- | $19.00 | --- | --- | 2.74% |
| HBAN | Huntington Bancshares Incorporated | E | 6/27/2016 | --- | $9.39 | --- | --- | 2.77% |
| JPM | JPMorgan Chase & Co. | D | 7/24/2016 | --- | $64.45 | --- | --- | 2.79% |
| KEY | KeyCorp | E | 6/24/2016 | --- | $11.72 | --- | --- | 2.56% |
| MTB | M&T Bank Corporation | D | 7/22/2016 | --- | $114.41 | --- | --- | 2.45% |
| PBCT | People's United Financial, Inc. | D | 6/20/2016 | --- | $15.11 | --- | --- | 4.43% |
| PNC | PNC Financial Services Group Inc | D | 6/24/2016 | --- | $84.17 | --- | --- | 2.42% |
| RF | Regions Financial Corp | E | 6/27/2016 | --- | $9.06 | --- | --- | 2.65% |
| STI | SunTrust Banks, Inc. | E | 2/17/2016 | --- | $41.99 | --- | --- | 2.29% |
| STT | State Street Corp | E | 6/25/2016 | --- | $65.64 | --- | --- | 2.07% |
| USB | U.S. Bancorp | D | 2/9/2016 | --- | $42.08 | --- | --- | 2.42% |
| WFC | Wells Fargo & Co | D | 6/27/2016 | --- | $47.74 | --- | --- | 3.14% |
| ZION | Zions Bancorp | E | 6/28/2016 | --- | $27.62 | --- | --- | 0.87% |
Disclaimer:
The author held a long position in People's United Financial Inc (PBCT, Financial) but did not hold a position in any other 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 and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions. Please also read our full disclaimer. This article first appeared on ModernGraham.
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