Seeking Alpha
Follows Benjamin Graham method, deep value, value, long only
Profile| Send Message| ()  

In the wake of the great financial crisis, it can sometimes be difficult for Intelligent Investors to find a solid bank in which to invest, because they require specific achievements over the historical period. Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn't be considered when evaluating the company's prospects, but doing so would involve speculation. We don't know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.

By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment. In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Zions Bancorporation fares in the ModernGraham valuation model.

ZION Chart

ZION data by YCharts

Defensive Investor - must pass all 6 of the following tests: Score = 3/6

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  3. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  4. 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
  5. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  6. 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

  1. Earnings Stability - positive earnings per share for at least 5 years - FAIL
  2. Dividend Record - currently pays a dividend - PASS
  3. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price$30.10
MG Value$0.95
MG OpinionOvervalued
Value Based on 3% Growth$0.36
Value Based on 0% Growth$0.21
Market Implied Growth Rate605.89%
PEmg1,220.27
PB Ratio0.88

Balance Sheet - 9/30/2013

Total Debt$2,304,300,000
Total Assets$55,188,300,000
Intangible Assets$1,014,100,000
Total Liabilities$48,855,500,000
Outstanding Shares184,600,000

Earnings Per Share

2013$1.77
2012$0.97
2011$0.84
2010-$2.48
2009-$9.92
2008-$2.67
2007$4.42
2006$5.36
2005$5.16
2004$4.47
2003$3.74

Earnings Per Share - ModernGraham

2013$0.02
2012-$1.45
2011-$2.43
2010-$3.06
2009-$2.08
2008$2.35

Dividend History

ZION Dividend Chart

ZION Dividend data by YCharts

Conclusion:

Zions Bancorporation does not pass the requirements of either the Defensive Investor or the Enterprising Investor. The company presents too much risk for the Defensive Investor, after failing to have sufficient earnings stability or growth over the ten year historical period and currently trading at a high PEmg ratio. The company also presents slightly more risk than the Enterprising Investor is willing to accept, as it has not had the requisite earnings stability in the five year historical period. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should seek out other opportunities, such as through a review of ModernGraham's valuation of People's United Financial (PBCT) or other companies that pass the ModernGraham requirements. The company also fares rather poorly in the ModernGraham valuation model, as a result of the very weak EPSmg (normalized earnings) for 2013. The company has improved its EPSmg substantially, from -$2.08 in 2009 to $0.02 for 2013, but until that figure is considerably higher, the valuation will continue to be poor.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Zions Bancorporation? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Zions Bancorporation (ZION) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Annual Valuation Of Zions Bancorporation