Regions Financial (NYSE:RF) is one of a long list of financial companies that suffered significant losses during the financial crisis. It is easy to look at these companies and speculate about which ones will recover well going forward, but it is important to keep the analysis based on fundamentals in a way that allows easy comparison of different companies. The financial industry includes some companies which survived the crisis while maintaining fairly stable earnings, and it is through a ModernGraham analysis that we can determine which of those companies may have the least amount of risk going forward. What follows is how Regions Financial fares in the ModernGraham valuation model.
Defensive and Enterprising Investor Tests:
Defensive Investor - must pass all 6 of the following tests: Score = 3/6
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
- Moderate PEmg ratio - PEmg is less than 20 - FAIL
- Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS
Enterprising Investor - must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3
- Earnings Stability - positive earnings per share for at least 5 years - FAIL
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$4.81|
|Value Based on 0% Growth||$2.82|
|Market Implied Growth Rate||12.20%|
Balance Sheet - 9/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
Regions Financial Corp needs a couple more years to prove it has recovered from the financial crisis before the Defensive Investor or the Enterprising Investor should be interested. For the Defensive Investor, the company has not sufficiently grown its earnings over a ten year period, has not had stable earnings over the period, and currently trades at a high PEmg ratio. For the Enterprising Investor, the company looks good except for the lack of earnings stability over the five year period. Once the company has had five consecutive years of positive earnings, the company will be much more attractive to Enterprising Investors. As it stands now, value investors seeking to follow Benjamin Graham's methods should look to other opportunities, such as by reviewing ModernGraham's analysis of JP Morgan (NYSE:JPM) or ModernGraham's analysis of Capital One Financial (NYSE:COF).
From a valuation side of things, the company has grown its EPSmg (normalized earnings) from -$1.69 in 2009 to an estimated $0.33 for 2013. While this is a solid level of growth that demonstrates the company is improving over its performance during the financial crisis, it does not support the market's current estimate for growth of 12.20%. As a result, the company would appear to be overvalued at the current time.
What do you think? What value do you place on Regions Financial? Is the company not suitable for Defensive Investors or Enterprising Investors? Is there a company you like better?
Disclosure: The author did not hold a position in Regions Financial (RF) or 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.