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In this series, we are going to value the common equity shares of Wells Fargo (NYSE:WFC), U.S. Bancorp (NYSE:USB) and PNC Financial (NYSE:PNC). In this article, we'll use price-sales sensitivity analysis and forecast full-year revenue. The analysis will indicate accumulation and distribution levels. In the previous article, we used a present value dividend discount model and the price-sales multiplier model to value the common equity shares.

Wells Fargo

Wells Fargo's revenue is forecast to be flat in the second half of 2012. The full-year revenue-share forecast is $9.27. The twelve trailing months revenue-share is $9.26.

Price-Sales: Sensitivity Analysis
$10.009.809.609.409.209.00
2022.042.082.132.172.22
252.502.552.602.662.722.78
303.003.063.133.193.263.33
353.503.573.653.723.803.89
404.004.084.174.264.354.44

Under the worst-case scenario, the price-sales ratio declines 45.8 percent from the current value. In that scenario, revenue-share increases to $10 and the share price declines to $20. More practically, I expect the price-sales ratio to be between 2.66 and 4.44 during the next six months. In other words, the low end of the range would be 28 percent below the current valuation, and the high end 20 percent above. Based on this analysis alone, investors would want to be buyers at price-sales values near 3 and sellers above 3.95.

U.S. Bancorp

U.S. Bancorp's revenue is forecast to increase in the second half of 2012. The full-year revenue-share forecast is $6.92. The twelve trailing months revenue-share is $6.82.

Sensitivity Analysis: Price-Sales
$7.006.806.606.40
202.862.943.033.13
253.573.683.793.91
304.294.414.554.69
355.005.155.305.47
405.715.886.066.25

Under the worst-case scenario, the price-sales ratio declines 42.7 percent from the current value. In that scenario, revenue-share increases to $7 and the share price declines to $20. More practically, I expect the price-sales ratio to be between 3.68 and 6.06 during the next six months. In other words, the low end of the range would be 26 percent below the current valuation, and the high end 21 percent above. Based on this analysis alone, investors would want to be buyers at price-sales values near 4 and sellers above 5.75.

PNC Financial

PNC's revenue is forecast to increase in the second half of 2012. The full-year revenue-share forecast is $20.48. The twelve trailing months revenue-share is $19.84.

Sensitivity Analysis: Price-Sales
$20.520.320.119.919.719.5
401.951.971.992.012.032.05
602.932.962.993.023.053.08
803.903.943.984.024.064.10

Under the worst-case scenario, the price-sales ratio declines 40 percent from the current value. In that scenario, revenue-share increases to $20.50 and the share price declines to $40. More practically, I expect the price-sales ratio to be between 2.5 and 4.02 during the next six months. In other words, the low end of the range would be 23 percent below the current valuation, and the high end 23.7 percent above. Based on this analysis alone, investors would want to be buyers at price-sales values near 2.7 and sellers near 3.8.

U.S. Bancorp and PNC's revenue is forecast to increase this year. Further, based on the estimated worst-case scenario PNC and U.S. Bancorp are the least risky.

Based on the sensitivity analysis, investors could invest in any of these firms at the right valuation. However, we're going to continue our examination of these firms to find the best investment opportunity.

To be continued...

Source: Valuing Bank Shares, Part V