BUSINESS
CVB Financial Corp. operates as a bank holding company for Citizens Business Bank, a state-chartered bank that provides banking and financial services to small to mid-sized businesses and individuals. It offers checking, savings, money market, and time certificates of deposit products for business and personal accounts; and serves as a federal tax depository for business customers.
INVESTMENT RATING
CVBF’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
CVB Financial has a current Value Trend Rating of B (Positive).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing inconsistent signals. CVB Financial has a neutral Power Rating of 53 but a good Appreciation Score of 79, and the Positive Value Trend Rating results.
CVB Financial’s stock is selling well below targeted value. The current stock price of $16.25 compares to targeted value 12 months forward of $40.
CVB Financial’s high appreciation potential results in an appreciation score of 79 (only 21% of the universe has greater appreciation potential.)
CVB Financial has a Power Rating of 53. (This neutral Power Rating indicates that CVBF’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: the Commercial Banks comparison group is in a strong phase currently; and recent price action has been neutral. An offsetting factor is the trend in CVBF’s earnings estimates has been unfavorable in recent months.
INVESTMENT PROFILE
CVBF’s financial strength is exceptional. Financial strength rating is 99.
Relative to the S&P 500 Composite, CVB Financial Corp has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that CVBF is extremely low risk. Relative weaknesses include: low forecasted profitability, and low historical profitability. CVBF’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. CVBF has unusually low market capitalization.
CURRENT SIGNALS
CVB Financial’s current operations are strong. Return on equity is rising, reflecting: and improving asset utilization.
CVB Financial’s current technical position is mixed. The stock price is in a 3.0 month down move. The stock has declined 16.6% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
Important negative changes in CVB Financial Corp (NASDAQ: CVBF) investment behavior have recently occurred: the stock’s recent price decline challenged its longer term uptrend.
The stock is currently rated B.
CVB Financial Corp (NASDAQ: CVBF) stock closed at $16.25 on 4/10/24 after a large decline of -6.3%. This decline was accompanied by normal trading volume. The stock has performed in line with the market over the last nine months and has declined -4.2% during the last week.
CASH FLOW
In 2023, CVB Financial generated a very significant increase in cash of +$76.5 million (+36%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$384.0 million. Non-operating uses consumed -$50.4 million (-13% of EBITDA). Cash taxes consumed -$94.0 million (-24% of EBITDA). Re-investment in the business amounted to -$851.9 million (-222% of EBITDA). On a net basis, debt investors contributed +$780.8 million (+203% of EBITDA) while equity investors removed -$92.0 million (-24% of EBITDA).
CVB Financial’s Non-operating Income, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvb Financial Peer Group. In most years, CVB Financial was in the top quartile. Currently, CVB Financial is upper quartile at -13% of EBITDA (-$50.4 million).
CVB Financial’s Cash Taxes, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvb Financial Peer Group. In most years, CVB Financial was in the lower quartile. Currently, CVB Financial is lower quartile at -24% of EBITDA (-$94.0 million).
CVB Financial’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Cvb Financial Peer Group. In most years, CVB Financial was in the second quartile and lower quartile. Currently, CVB Financial is below median at -222% of EBITDA (-$851.9 million).
CVB Financial’s Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvb Financial Peer Group. (Since 2019 Debt Investors, %EBITDA has accelerated very sharply.) In most years, CVB Financial was in the top quartile and lower quartile. Currently, CVB Financial is at median at +203% of EBITDA (+$780.8 million).
CVB Financial’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Cvb Financial Peer Group. In most years, CVB Financial was in the third quartile and second quartile. Currently, CVB Financial is lower quartile at -24% of EBITDA (-$92.0 million).
CVB Financial’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Cvb Financial Peer Group. In most years, CVB Financial was in the second quartile and third quartile. Currently, CVB Financial is at median at +20% of EBITDA (+$76.5 million).
CVB Financial’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Cvb Financial Peer Group. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, CVB Financial was in the third quartile and lower quartile. Currently, CVB Financial is lower quartile at +43%.
PROFITABILITY
CVB Financial’s return on equity has been stable since 2014. The current level of 10.7% is 0.90X the low for the period and is -11.8% from the high.
This stability was due to small negative trend in pretax operating return and very minor positive trend in non-operating factors.
The productivity of CVB Financial’s assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change but it experienced very sharp improvement from the 2021 level.
Additionally, pretax margin has experienced a downtrend that accelerated sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
CVB Financial’s return on equity is slightly below median (10.7%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is above median (2.0%) reflecting asset turnover that is lower quartile (0.04X) and pretax margin at the upper quartile (47.4%).
Tax “keep” rate (income tax management) is lower quartile (70.2%) resulting in after tax return on assets that is slightly above median.
Financial leverage (leverage) is below median (7.71X).
GROWTH RATES
Overall, CVB Financial’s growth rate has slowed very considerably in recent years.
CVB Financial’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 6.3% per year. (More recently it has been 13.0%.)
Total asset growth has been 6.6% per year. (More recently it has been 0.0%.)
Annual E.P.S. growth has been 6.5% per year. (More recently it has been 1.8%.)
Equity growth has been 7.1% per year. (More recently it has been 0.8%.)
No consensus growth rate forecast is available for CVB Financial.
Relative to the Cvb Financial Peer Group, CVB Financial’s historical growth measures are generally third quartile. Equity growth (7.1%) has been above median. Total asset growth (6.6%) has been at median. Revenue growth (6.3%) has been below median. E.P.S. growth (6.5%) has been slightly below median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, CVB Financial’s stock price performance has been variable and significantly below market. Between June, 2013 and April, 2024, CVB Financial’s stock price rose +38%; relative to the market, this was a -57% loss. Significant price move during the period: 1) October, 2022 – May, 2023: -58%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -25.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -25.3% is lower quartile relative to CVB Financial Corp Peer Group.
Current 5-year total return performance of -2.1% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -2.1% relative to S&P 500 Composite, CVB Financial’s total return performance is substantially below median relative to CVB Financial Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CVBF’s overall valuation is low. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is at the lower quartile. Price/earnings ratio is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/assets, is lower quartile.
Relative to CVB Financial Peer Group, CVBF’s overall valuation is high. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/assets is upper quartile. Price/earnings ratio is above median. Price/equity ratio is at median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is slightly below median.
CVB Financial has a major value gap compared to the median valuation. For CVBF to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 6.96X to 4.16X. If CVBF’s ratio of enterprise value/revenue were to fall to 4.16X, its stock price would be lower by $-13 to $3.
For CVBF to fall to lower quartile valuation relative to the CVB Financial Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 6.96X to 3.78X. If CVBF’s ratio of enterprise value/revenue were to fall to 3.78X, its stock price would decline by $-15 from the current level of $16.
VALUE TARGETS
CVBF’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a Value Builder.
CVB Financial’s current Price Target of $41 represents a +150% change from the current price of $16.25.
This high appreciation potential results in an appreciation score of 79 (only 21% of the universe has greater appreciation potential.)
With this high Appreciation Score of 79, the neutral Power Rating of 53 results in an Value Trend Rating of B.
CVB Financial’s current Price Target is $41 (+2% from the 2023 Target of $40 and +150% from the 04/10/24 price of $16.25). This plateau in the Target is the result of a +7% increase in the equity base and a -5% decrease in the price/equity multiple. The forecasted increase in return on equity has a slight positive impact on the price/equity multiple and the forecasted decline in cost of equity has a very slight positive impact as well. More than offsetting these Drivers, the forecasted decline in growth has a large negative impact.
PTR’s return on equity forecast is 9.5% — in line with our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2015 and 2023. The current forecast is steady at the 2015 peak of 11%.
PTR’s growth forecast is 8.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is well above the 2015 low of 2%.
PTR’s cost of equity forecast is 6.1% — in line with recent levels. Forecasted cost of equity exhibited a modest, erratic decline between 2015 and 2023. The current forecast is steady at the 2018 peak of 7.4%.
At CVB Financial’s current price of $16.25, investors are placing a negative value of $-8 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 9.1% versus a cost of equity of 6.1%.
PTR’s 2025 Price Target of $41 is based on these forecasts and reflects an estimated value of existing assets of $23 and a value of future investments of $18.
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