Seeking Alpha
Recommended for you:
Profile| Send Message|
( followers)  

A man begins cutting his wisdom teeth the first time he bites off more than he can chew. Herb Caen

BB&T Corporation (NYSE:BBT), founded in 1906, is a financial holding company. It conducts its business through Branch Banking and Trust Company. It t provides various banking and trust services for retail and commercial clients. In 2011 it announced the acquisitions of Liberty Benefit Insurance services, The Precept Group and Atlantic Risk Management. In April of 2012, it acquired the life, property and casualty insurance operating divisions of Crump Group Inc. It operates through six segments, which are illustrated in the pie graph below.

We like BB&T Corporation for the following reasons:

  • It pays out dividends regularly and in March 2012, the company received approval to hike its dividends by 25% to $0.20 per share. Over the long-term management is targeting a dividend payout ratio in the 30-50% ranges.
  • Its focus has been on driving growth organically. This can be seen via the growth in its client deposits and increase in net interest income. In 2011, net interest income grew roughly at 4% in comparison to 2010. Deposits improved by 17% in 2011, and loans grew by 4% in comparison to 2010.
  • It is in great shape from a capital perspective. As of the end of 2011, it remains well capitalized with its financial ratios; Tier 1 capital of 12.5%, total capacity of 15.7% and leverage of 9%; all of these ratios are well above regulatory requirements. It should continue to build capital over the years as earnings are expected to remain strong, which will only serve to further strengthen its already great financial position and help it meet the Basel III requirements.

Reasons to be bullish on BB&T Corporation (BBT) for the following reasons:

  • A good free cash flow of $3.8 billion.
  • Net income increased from $853 million in 2009 to $1.28 billion in 2011.
  • EBITDA increased from $2.14 billion in 2009 to $2.75 billion in 2011.
  • Cash flow per share increased from $1.753 in 2009 to $2.37 in 2011.
  • Annual EPS before NRI increased from $1.15 in 2009 to $1.83 in 2011.
  • A stellar record of increasing dividends; it has increased dividends consecutively for 40 years.
  • A decent 3 year total return of 44%.
  • Operating margins of 30% and profit margins of 19%.
  • A low payout ratio of 35%.
  • A projected 3-5 year EPS growth rate of 10%.
  • A decent interest coverage ratio of 3.6.
  • A beta of 1.35 which makes it a good candidate to sell covered calls, or if you are bullish naked puts; selling covered calls and naked puts helps open up additional streams of income.
  • A strong free cash flow yield of 19.2%.
  • Year over a year projected growth rates for 2012 and 2013 are 44% and 13% respectively.
  • A very strong quarterly earnings growth rate of 91%.
  • A good quarterly earnings growth rate of 21.7%.

Many traders use other metrics and that is fine; we are just trying to provide a guideline. As you get a better handle of the ratios explained below you can create your own list of criteria.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - 5 Top Weighted Alpha Plays To Reflect On.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditure, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share is $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article - 5 Top Weighted Alpha Plays To Reflect On: Part I.

Company: BBT CORPORATION

Free Cash Flow = $3.8 billion

Basic Key ratios

  1. Percentage Held by Insiders = 0.04
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = 1289
  2. Net Income ($mil) 12/2010 = 816
  3. Net Income ($mil) 12/2009 = 853
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 57.97
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 87.98
  1. EBITDA ($mil) 12/2011 = 2759
  2. EBITDA ($mil) 12/2010 = 2229
  3. EBITDA ($mil) 12/2009 = 2144
  4. Annual Net Income this Yr/ Net Income last Yr = 57.97
  5. Cash Flow ($/share) 12/2011 = 2.37
  6. Cash Flow ($/share) 12/2010 = 1.73
  7. Cash Flow ($/share) 12/2009 = 1.73
  1. Sales ($mil) 12/2011 = 9998
  2. Sales ($mil) 12/2010 = 11072
  3. Sales ($mil) 12/2009 = 10818
  1. Annual EPS before NRI 12/2009 = 1.15
  2. Annual EPS before NRI 12/2010 = 1.16
  3. Annual EPS before NRI 12/2011 = 1.83

Dividend history

  1. Dividend Yield = 2.50%
  2. Dividend Yield 5 Year Average 12/2011 = 4.16
  3. Dividend Yield 5 Year Average 09/2011 = 4.16
  4. Annual Dividend 12/2011 = 0.62
  5. Annual Dividend 12/2010 = 0.6
  6. Forward Yield = 2.05
  7. Dividend 5 year Growth 12/2011 = -8.8%

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.35
  2. Payout Ratio 5 Year Average 12/2011 = 0.58
  3. Payout Ratio 5 Year Average 09/2011 = 0.58
  4. Payout Ratio 5 Year Average 06/2011 = 0.58
  5. Change in Payout Ratio = -0.23

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 9.2
  2. Next 3-5 Year Estimate EPS Growth rate = 10
  3. EPS Growth Quarterly(1)/Q(-3) = -171.88
  4. ROE 5 Year Average 12/2011 = 8.85
  5. Return on Investment 06/2011 = 3.25
  6. Debt/Total Cap 5 Year Average 12/2011 = 57.63
  1. Current Ratio 06/2011 = 0.85
  2. Current Ratio 5 Year Average = 0.9
  3. Quick Ratio = 0.82
  4. Cash Ratio = 0.04
  5. Interest Coverage Quarterly = 3.69

Valuation

  1. Book Value Quarterly = 25.08
  2. Price/ Book = 1.28
  3. Price/ Cash Flow = 17.30
  4. Price/ Sales = 2.18
  5. EV/EBITDA 12 Mo = 14.04

Company: LIZ CLAIRBORNE (LIZ)

Basic Key ratios

  1. Percentage Held by Insiders = 1.04
  2. Number of Institutional Sellers 12 Weeks = 1

Growth

  1. Net Income ($mil) 12/2011 = -172
  2. Net Income ($mil) 12/2010 = -251
  3. Net Income ($mil) 12/2009 = -306
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 50.74
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 37.06
  1. EBITDA ($mil) 12/2011 = 283
  2. EBITDA ($mil) 12/2010 = 64
  3. EBITDA ($mil) 12/2009 = -52
  4. Annual Net Income this Yr/ Net Income last Yr = 31.73
  5. Cash Flow ($/share) 12/2011 = 0.6
  6. Cash Flow ($/share) 12/2010 = 0.27
  7. Cash Flow ($/share) 12/2009 = -0.15
  1. Sales ($mil) 12/2011 = 1519
  2. Sales ($mil) 12/2010 = 2500
  3. Sales ($mil) 12/2009 = 3012
  1. Annual EPS before NRI 12/2007 = 1.3
  2. Annual EPS before NRI 12/2008 = 0.8
  3. Annual EPS before NRI 12/2009 = -1.46
  4. Annual EPS before NRI 12/2010 = -0.78
  5. Annual EPS before NRI 12/2011 = -0.32

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 110.25
  2. Next 3-5 Year Estimate EPS Growth rate = 11
  3. EPS Growth Quarterly(1)/Q(-3) = -158.93
  4. ROE 5 Year Average 12/2011 = -24.32
  5. ROE 5 Year Average 09/2011 = -24.32
  6. ROE 5 Year Average 06/2011 = -22
  7. Return on Investment 06/2011 = -25.69
  8. Debt/Total Cap 5 Year Average 12/2011 = 54.66
  1. Current Ratio 06/2011 = 1.29
  2. Current Ratio 5 Year Average = 1.53
  3. Quick Ratio = 0.84
  4. Cash Ratio = 0.56
  5. Interest Coverage Quarterly = 27.23

Valuation

  1. Book Value Quarterly = -1.15
  2. Price/ Book = N/A
  3. Price/ Cash Flow = 23.09

Company: PNC FINANCIAL SERVICE CORPORATION (NYSE:PNC)

Basic Key ratios

  1. Percentage Held by Insiders = 0.28
  2. Number of Institutional Sellers 12 Weeks = 3
  3. Relative Strength 52 weeks = 70
  4. Dividend 5-year Growth = -25.53
  5. Cash Flow 5 -year Average = 6.11
  6. Dividend Yield 5-Year Average = 2.61

Growth

  1. Net Income ($mil) 12/2011 = 3056
  2. Net Income ($mil) 12/2010 = 3412
  3. Net Income ($mil) 12/2009 = 2447
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -15.81
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -3.36
  1. EBITDA ($mil) 12/2011 = 6035
  2. EBITDA ($mil) 12/2010 = 6077
  3. EBITDA ($mil) 12/2009 = 5465
  4. Annual Net Income this Yr/ Net Income last Yr = -10.43
  5. Cash Flow ($/share) 12/2011 = 8.52
  6. Cash Flow ($/share) 12/2010 = 8.12
  7. Cash Flow ($/share) 12/2009 = 6.43
  1. Sales ($mil) 12/2011 = 15820
  2. Sales ($mil) 12/2010 = 17096
  3. Sales ($mil) 12/2009 = 16988
  1. Annual EPS before NRI 12/2007 = 5.05
  2. Annual EPS before NRI 12/2008 = 3.68
  3. Annual EPS before NRI 12/2009 = 3.45
  4. Annual EPS before NRI 12/2010 = 6.07
  5. Annual EPS before NRI 12/2011 = 6.18

Dividend history

  1. Dividend Yield = 2.40
  2. Dividend Yield 5 Year Average 12/2011 = 2.61
  3. Dividend Yield 5 Year Average 09/2011 = 2.61
  4. Annual Dividend 12/2011 = 1.15
  5. Annual Dividend 12/2010 = 0.4
  6. Forward Yield = 2.51
  7. Dividend 5 year Growth 12/2011 = -25.53

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.23
  2. Payout Ratio 5 Year Average 12/2011 = 0.33
  3. Payout Ratio 5 Year Average 09/2011 = 0.33
  4. Payout Ratio 5 Year Average 06/2011 = 0.33
  5. Change in Payout Ratio = -0.1

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 0.84
  2. Next 3-5 Year Estimate EPS Growth rate = 5.39
  3. EPS Growth Quarterly(1)/Q(-3) = -106.37
  4. ROE 5 Year Average 12/2011 = 9.69
  5. ROE 5 Year Average 09/2011 = 9.69
  6. ROE 5 Year Average 06/2011 = 9.9
  7. Return on Investment 06/2011 = 4.89
  8. Debt/Total Cap 5 Year Average 12/2011 = 52.46
  9. Debt/Total Cap 5 Year Average 09/2011 = 52.46
  10. Debt/Total Cap 5 Year Average 06/2011 = 51.92
  1. Current Ratio 06/2011 = 0.86
  2. Current Ratio 5 Year Average = 0.86
  3. Quick Ratio = 0.84
  4. Cash Ratio = 0.05
  5. Interest Coverage Quarterly = 4.27

Company: LEGGETTT & PLATT (NYSE:LEG)

Levered Free Cash Flow = $240 million

Basic Key ratios

  1. Percentage Held by Insiders = 2.21
  2. Number of Institutional Sellers 12 Weeks = 8
  3. Relative Strength 52 weeks = 57
  4. Dividend 5-year Growth = 6.52
  5. Cash Flow 5 -year Average = 2.17
  6. Dividend Yield 5-Year Average = 5.18

Growth

  1. Net Income ($mil) 12/2011 = 153
  2. Net Income ($mil) 12/2010 = 177
  3. Net Income ($mil) 12/2009 = 112
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -13.19
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -72.29
  1. EBITDA ($mil) 12/2011 = 361
  2. EBITDA ($mil) 12/2010 = 416
  3. EBITDA ($mil) 12/2009 = 369
  4. Annual Net Income this Yr/ Net Income last Yr = -13.19
  5. Cash Flow ($/share) 12/2011 = 2.02
  6. Cash Flow ($/share) 12/2010 = 2.05
  7. Cash Flow ($/share) 12/2009 = 1.78
  1. Sales ($mil) 12/2011 = 3636
  2. Sales ($mil) 12/2010 = 3359
  3. Sales ($mil) 12/2009 = 3055
  1. Annual EPS before NRI 12/2007 = 1.18
  2. Annual EPS before NRI 12/2008 = 0.88
  3. Annual EPS before NRI 12/2009 = 0.86
  4. Annual EPS before NRI 12/2010 = 1.16
  5. Annual EPS before NRI 12/2011 = 1.12

Dividend history

  1. Dividend Yield = 5.10
  2. Dividend Yield 5 Year Average 12/2011 = 5.18
  3. Dividend Yield 5 Year Average 09/2011 = 5.18
  4. Annual Dividend 12/2011 = 1.1
  5. Annual Dividend 12/2010 = 1.06
  6. Forward Yield = 5.15
  7. Dividend 5 year Growth 12/2011 = 6.52

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.95
  2. Payout Ratio 5 Year Average 12/2011 = 1.02
  3. Payout Ratio 5 Year Average 09/2011 = 1.02
  4. Payout Ratio 5 Year Average 06/2011 = 0.99
  5. Change in Payout Ratio = -0.07

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -7.73
  2. Next 3-5 Year Estimate EPS Growth rate = 15
  3. EPS Growth Quarterly(1)/Q(-3) = 126.67
  4. ROE 5 Year Average 12/2011 = 9.83
  5. Return on Investment 06/2011 = 7.73
  6. Debt/Total Cap 5 Year Average 12/2011 = 34.52
  1. Current Ratio 06/2011 = 2.09
  2. Current Ratio 5 Year Average = 2.36
  3. Quick Ratio = 1.34
  4. Cash Ratio = 0.48
  5. Interest Coverage Quarterly = 2.48

Company: DYNEX CAPITAL INC (NYSE:DX)

Levered Free Cash Flow = $29.7 million

Basic Key ratios

  1. Percentage Held by Insiders = 7.25
  2. Relative Strength 52 weeks = 53
  3. Dividend 5-year Growth = 38.03
  4. Cash Flow 5 -year Average = 0.97
  5. Dividend Yield 5-Year Average = 8.5

Growth

  1. Net Income ($mil) 12/2011 = 40
  2. Net Income ($mil) 12/2010 = 29
  3. Net Income ($mil) 12/2009 = 18
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 35.08
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 49.35
  1. EBITDA ($mil) 12/2011 = 72
  2. EBITDA ($mil) 12/2010 = 36
  3. EBITDA ($mil) 12/2009 = 20
  4. Annual Net Income this Yr/ Net Income last Yr = 35.09
  5. Cash Flow ($/share) 12/2011 = 1.79
  6. Cash Flow ($/share) 12/2010 = 1.21
  7. Cash Flow ($/share) 12/2009 = 1.48
  1. Sales ($mil) 12/2011 = 83
  2. Sales ($mil) 12/2010 = 49
  3. Sales ($mil) 12/2009 = 37
  1. Annual EPS before NRI 12/2007 = 0.4
  2. Annual EPS before NRI 12/2008 = 0.91
  3. Annual EPS before NRI 12/2009 = 1.02
  4. Annual EPS before NRI 12/2010 = 1.41
  5. Annual EPS before NRI 12/2011 = 1.03

Dividend history

  1. Dividend Yield = 11.90
  2. Dividend Yield 5 Year Average 12/2011 = 8.5
  3. Annual Dividend 12/2011 = 1.09
  4. Forward Yield = 12.46
  5. Dividend 5 year Growth 12/2011 = 38.03

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.07
  2. Payout Ratio 5 Year Average 12/2011 = 0.73
  3. Change in Payout Ratio = 0.34

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -10.54
  2. EPS Growth Quarterly(1)/Q(-3) = -116.13
  3. ROE 5 Year Average 12/2011 = 13.07
  4. Return on Investment 06/2011 = 1.59
  5. Debt/Total Cap 5 Year Average 12/2011 = 75.81
  1. Current Ratio 06/2011 = 13.07
  2. Current Ratio 5 Year Average = 72.6
  3. Quick Ratio = 13.07
  4. Cash Ratio = 3.7
  5. Interest Coverage = 2.7

Conclusion

Long-term investors should wait for the market to let out some more steam before committing large amount of money to this market as they are still extremely overbought. A pullback in the 7%-12% from the peak would qualify as a strong pullback.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: BB&T Corporation: A Good Long-Term Play?

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis sourced from reuters.com. Full year 2011 GAAP Net Revenue by segment pie chart sourced from zacks.com.