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Anatomy of Success: SVB Financial (SIVB)

Madeleine Johnson
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The Zacks Rank methodology is a unique way to discover some of the best companies to invest in, and is a useful tool for beginner and more experienced investors alike; it identifies companies both big and small that have the right characteristics to produce superior gains.

When a company earns that coveted Zacks Rank #1 (Strong Buy) label, its means they have a high probability of outperforming the market over the next one to three months. But, achieving this high rank is not an easy thing to do, as only 5% of companies within the Zacks Rank universe earn this position.

Below, we highlight a top performing stock in the banking industry, and by following our ranking system, investors could have realized nice gains.

SVB Financial Group (SIVB)

SVB Financial is a diversified services company, as well as a bank and financial holding company. It offers a wide range of banking and financial products and services to clients across the U.S. primarily in the technology, life science/healthcare, private equity/venture capital and premium wine industries. SVB’s main subsidiary is Silicon Valley Bank, a California state-chartered bank and a member of the Federal Reserve System; the bank and its subsidiaries also offer asset management, private wealth management, brokerage and other investment services.

The first time SIVB was added to the #1 (Strong Buy) list was right after the New Year began on January 5. Analysts were anticipating a great fourth quarter report, and their overall bullishness caused the stock to remain a #1 pick for nearly all of January. Shares closed at $243.85 that day.

Q4 was indeed a good quarter for SVB Financial, with both the top and bottom line surpassing the Zacks Consensus. SIVB saw growth in loans and client funds, in addition to solid increases in net interest income, net interest margin, solid core fee income, and stable credit.

The next time SIVB was added to the #1 list was on May 4 after the company reported impressive fiscal 2018 first quarter results. Diluted earnings of $3.63 per share easily beat the Zacks Consensus Estimate of $3.13 per share, and revenues of $575 million also topped our consensus estimate. The average total client funds increased almost 8% to $110.5 billion. CEO Greg Becker noted that the company saw significant benefits from higher interest rates and lower taxes as well. Five months after first becoming a #1 pick, shares increased over 25% to $305.82 per share.

SIVB was also added to the Strong Buy list after reported Q2 2018 results on July 27. Both earnings and revenues beat our consensus estimate, and SVB posted its ninth consecutive earnings beat this quarter.  Average loan balances jumped 4.4%, while period-end loan balances grew 5.7%. Overall, the second quarter was a strong one for SVB Financial, and the company witnessed strong client liquidity and healthy valuation gains from its VC-related investments. Seven months after first becoming a #1 stock, shares were up about 30% to $317.32 per share.

SIVB is still holding on to its #1 (Strong Buy) rank, and the stock has gained almost 88% in the past one-year period.

This table shows the price performance of SIVB (in red), as well as the 12-month forward looking EPS estimate (in green) from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, SIVB never moved lower than a Zacks Rank #3 (Hold).

 

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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