BB&T Corporation: A Four-Star Buy

Linked here is a PDF copy of my analysis of BB&T Corporation (BBT) (alt1, alt.2).

Below are some highlights from the above linked analysis:

Company Description: The BB&T Corporation operates as a holding company for Branch Banking and Trust Company that provides commercial banking and trust services for small and mid-size businesses, public agencies, local governments, and individuals in the United States.

Fair Value: I considered four calculations of fair value. See page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BBT is trading at a discount to all the above valuations. If I exclude the high and low valuation, and average the remaining two valuations, BBT is trading at an astounding 31.3% discount. A star is added since BBT is trading at a fair value.

Dividend Analytical Data: In this section I considered five factors. See page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of Average

BBT earned one Star in this section for 3 above. It has paid a cash dividend to shareholders every year since 1903 and has increased its quarterly cash dividend payments for 36 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high yield MMA.

Two items were considered in this section. See page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to >MMA.

BBT earned both Stars available in this section. With a 7.56% current yield, BBT is paying well in excess of the long-term average money market rate of 4.61%. BBT's NPV MMA Diff is $17,688.

Other: BBT is a member of the S&P 500, a Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. S&P commented that BBT has strong credit quality in its loan portfolio, and a good history of profitability. In a difficult operating environment, BBT has grown commercial and industrial lending, while maintaining acceptable credit quality and funding growth. BBT is exposed to the Florida housing market, but the company has said it has not made loans to the riskiest segments of the Florida housing market, such as condominium developments.

Conclusion: BBT earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section, and two Stars in the Dividend Income vs. MMA section for a net total of four Stars. As a result, BBT is rated a Four-Star Buy.

Last week after analysts speculated that BBT would cut its dividend, the company issued a statement reaffirming an earlier assertion that the company's capital levels remain strong and management anticipates "some increase in the cash dividend during 2008." Based on the above analysis, I would be comfortable adding to my BBT position, as my allocation and valuation allows.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I owned shares of BBT (1.9% of my Income Portfolio).

Comments

[nyka]

A 5-star analysis. Nice to see this kind of research, as opposed to vague commentary designed to boost a stock's sale price.

[helplessobserver]

Awhile back I looked at the BBT 10Q and found no subprime loan paper. Discounted paper was all US Govt issue and will be held to maturity. Non performing loans were about 1/2 of 1 percent. We can expect an increase here in the next report. In summary the 10Q showed a consertative management carefully growing a solid financial institution.