Comments on: Valuing US Bancorp http://www.fatpitchfinancials.com/542/valuing-us-bancorp/ Special situation stocks and value investing Fri, 10 Oct 2008 22:10:42 +0000 http://wordpress.org/?v=2.6.1 By: Class in Session: Equity Valuation with Professor Damodaran - Fat Pitch Financials http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-94079 Class in Session: Equity Valuation with Professor Damodaran - Fat Pitch Financials Tue, 03 Apr 2007 10:43:38 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-94079 [...] free online. I discovered the new webcasts when I was searching for a valuation spreadsheet to analyze US Bancorp. Just like when I was back in college, I’m once again late for [...] [...] free online. I discovered the new webcasts when I was searching for a valuation spreadsheet to analyze US Bancorp. Just like when I was back in college, I’m once again late for [...]

]]> By: JArp http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93712 JArp Mon, 02 Apr 2007 17:16:45 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93712 I have several issues with this approach. 1.) We don't know the future... future period of high growth, future dividend payouts etc... 2.) The risk free rate should be the T-Bill (3m) not 10-year yield. Difference of 50 bps 3.) We can't expect the current earnings to continue at record profit margins. The Graham & Dodd approach is to use the 10-ear average earnings adjusted by inflation, i.e. bump prior years' EPS up by the amount of the loss of purchasing power. I use the CPI for this, you can use gold, money supply supply, or whatever floats your boat. This will change your pay-out ratio as well. My method, I add current dividends and the 10-year avg (inflation adjusted earnings) and divide the whole thing by a required return, which should be at least the Baa Corp bond yield of 6.39% or so. Using this method you'll find that there is very little marging of safety. I don't have this companies financials at hand, so I don't know what you'd come up with, but my guess it would be below the current price. It's funny how after years of bull markets how everything just gets "cheaper". Remember how "expensive" everything was in late 2002, when the analyst expectations were for losses to continue forever. Now we see the mirror image. I'm not saying the stock won't go up. Gerry Loeb pointed out in correctly The Battle for Investment Survival that markets can go years without reflecting "fair values". My only point is that most "Fundamental" models of today are used to justify the belief that stocks should "go up". If you truly believe that the credit deterioration is not going to effect bank earnings, then maybe this model is right for you. I have several issues with this approach.
1.) We don’t know the future… future period of high growth, future dividend payouts etc…
2.) The risk free rate should be the T-Bill (3m) not 10-year yield. Difference of 50 bps
3.) We can’t expect the current earnings to continue at record profit margins.

The Graham & Dodd approach is to use the 10-ear average earnings adjusted by inflation, i.e. bump prior years’ EPS up by the amount of the loss of purchasing power. I use the CPI for this, you can use gold, money supply supply, or whatever floats your boat. This will change your pay-out ratio as well. My method, I add current dividends and the 10-year avg (inflation adjusted earnings) and divide the whole thing by a required return, which should be at least the Baa Corp bond yield of 6.39% or so.

Using this method you’ll find that there is very little marging of safety. I don’t have this companies financials at hand, so I don’t know what you’d come up with, but my guess it would be below the current price.

It’s funny how after years of bull markets how everything just gets “cheaper”. Remember how “expensive” everything was in late 2002, when the analyst expectations were for losses to continue forever. Now we see the mirror image.

I’m not saying the stock won’t go up. Gerry Loeb pointed out in correctly The Battle for Investment Survival that markets can go years without reflecting “fair values”. My only point is that most “Fundamental” models of today are used to justify the belief that stocks should “go up”.

If you truly believe that the credit deterioration is not going to effect bank earnings, then maybe this model is right for you.

]]> By: Festival of Stocks #30 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93523 Festival of Stocks #30 Mon, 02 Apr 2007 10:01:42 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93523 [...] Valuing US BanCorp - Investing along side Warren Buffet is usually never a bad idea. George analyzes USB, and calculates the stock’s intrinsic value. [...] [...] Valuing US BanCorp - Investing along side Warren Buffet is usually never a bad idea. George analyzes USB, and calculates the stock’s intrinsic value. [...]

]]> By: Vitaliy Katsenelson http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93209 Vitaliy Katsenelson Mon, 02 Apr 2007 00:48:49 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-93209 George, I owned USB stock for couple years. Here is the latest article I wrote on it: http://contrarianedge.com/2006/10/25/us-bancorps-glass-is-half-full/ Also, I suggest you take a look at another bank - Lloyds TSB (LYG), a very well run British Bank with 5%+ dividend and AAA rated balance sheet. I wrote several articles on the stock, search on my website ContrarianEdge.com Best, Vitaliy George, I owned USB stock for couple years. Here is the latest article I wrote on it:

http://contrarianedge.com/2006.....half-full/

Also, I suggest you take a look at another bank - Lloyds TSB (LYG), a very well run British Bank with 5%+ dividend and AAA rated balance sheet. I wrote several articles on the stock, search on my website ContrarianEdge.com

Best,

Vitaliy

]]> By: charles http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92862 charles Sun, 01 Apr 2007 14:22:55 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92862 The way this market is going, maybe, just maybe..... "A bird in the hand is worth two in the bush" The way this market is going, maybe, just maybe…..
“A bird in the hand is worth two in the bush”

]]> By: erik http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92728 erik Sun, 01 Apr 2007 06:02:07 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92728 I do not get UBS or bank of granville. Yes they are well run banks, but they have slower growing and have higher multiples than the average bank. I swear buffet pays a premium sometimes for people he knows and companies where he has direct contact or insight. 5 year sales are a steady flat line growth rate of 3.8% to 4.9%. 5 year Earnings are growing at 8.9% to 10.5%. ROE average is steady at 21.0 Based on UBS earning $3.92 in 2012 and using a PE range of 8 to 13, the company will sell in for between 31 to 51 in 2012. Average return including dividends of about 7.2% to 11.1% I do not get UBS or bank of granville. Yes they are well run banks, but they have slower growing and have higher multiples than the average bank. I swear buffet pays a premium sometimes for people he knows and companies where he has direct contact or insight.

5 year sales are a steady flat line growth rate of 3.8% to 4.9%.
5 year Earnings are growing at 8.9% to 10.5%.

ROE average is steady at 21.0

Based on UBS earning $3.92 in 2012 and using a PE range of 8 to 13, the company will sell in for between 31 to 51 in 2012.

Average return including dividends of about 7.2% to 11.1%

]]> By: links for 2007-03-31 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92544 links for 2007-03-31 Sat, 31 Mar 2007 16:22:47 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92544 [...] Valuing US Bancorp - Fat Pitch Financials (tags: usb stocks) [...] [...] Valuing US Bancorp - Fat Pitch Financials (tags: usb stocks) [...]

]]> By: Jason http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92340 Jason Sat, 31 Mar 2007 04:21:28 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92340 His website is one of the best resources I have seen - ever. Thank thank for sharing. His website is one of the best resources I have seen - ever. Thank thank for sharing.

]]> By: Value Investing News http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92104 Value Investing News Fri, 30 Mar 2007 16:55:23 +0000 http://www.fatpitchfinancials.com/542/valuing-us-bancorp/#comment-92104 <strong>Valuing US Bancorp...</strong> Given all the attention that US Bancorp has been getting here as a result of Warren Buffett's increased stake in the company, I decided it was time for me to attempt to value the company. This article details how I used a dividend discount model spre... Valuing US Bancorp…

Given all the attention that US Bancorp has been getting here as a result of Warren Buffett’s increased stake in the company, I decided it was time for me to attempt to value the company. This article details how I used a dividend discount model spre…

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