Is Fulton Financial Corporation (NASDAQ:FULT) Worth $17.55 Based On Intrinsic Value?

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Valuing FULT, a bank stock, can be daunting since these financial companies have cash flows that are impacted by regulations that are not imposed upon other industries. The tiered capital structure is common for banks to abide by, in order to ensure they maintain a sufficient level of cash for their customers. Looking at data points like book values, on top of the return and cost of equity, is fitting for assessing FULT’s true value. Today I’ll determine how to value FULT in a relatively accurate and easy way. Check out our latest analysis for Fulton Financial

What Model Should You Use?

Financial firms differ to other sector firms primarily because of the kind of regulation they face and their asset composition. United States’s financial regulatory environment is relatively strict. Furthermore, banks tend to not possess substantial portions of physical assets on their balance sheet. As traditional valuation models put weight on inputs such as capex and depreciation, which is less meaningful for finacial firms, the Excess Return model places importance on forecasting stable earnings and book values.

NasdaqGS:FULT Intrinsic Value Apr 17th 18
NasdaqGS:FULT Intrinsic Value Apr 17th 18

Calculating FULT’s Value

The main assumption for Excess Returns is that equity value is how much the firm can earn, over and above its cost of equity, given the level of equity it has in the company at the moment. The returns in excess of cost of equity is called excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (10.19% – 9.90%) * $14.13 = $0.04

We use this value to calculate the terminal value of the company, which is how much we expect the company to continue to earn every year, forever. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= $0.04 / (9.90% – 2.47%) = $0.55

Putting this all together, we get the value of FULT’s share:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= $14.13 + $0.55 = $14.68

Relative to the present share price of $17.55, FULT is trading in-line with its true value. This means FULT isn’t an attractive buy right now. Pricing is one part of the analysis of your potential investment in FULT. There are other important factors to keep in mind when assessing whether FULT is the right investment in your portfolio.

Next Steps:

For banks, there are three key aspects you should look at:

  1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like bad loans and customer deposits.

  2. Future earnings: What does the market think of FULT going forward? Our analyst growth expectation chart helps visualize FULT’s growth potential over the upcoming years.

  3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether FULT is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on FULT here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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