Wednesday, August 6, 2008

* Stock Analysis: M&T Bank Corporation (MTB)

Linked here is a PDF copy of my detailed analysis of M&T Bank Corporation (MTB) (alt.1, alt.2). Below are some highlights from the above linked analysis:


Company Description: M&T Bank Corporation operates as the holding company for M&T Bank and M&T Bank, National Association, which provides commercial and retail banking services.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
MTB is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuation and average the remaining two, MTB is trading at a 8.0% discount. MTB earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
MTB earned one Star in this section for 3.) above. MTB has paid a cash dividend to shareholders every year since 1979 and has increased its dividend payments for 25+ consecutive years. Last year's dividend payout was 44%, up from 31% in 2006. Since the increase was in excess of 15 points, a Star is deducted, leaving a net of zero Stars in this section.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA
MTB earned both of the available Stars in this section. The NPV MMA Diff. of the $5,590 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as MTB has. If MTB grows its dividend at 7.7% per year, it will take 4 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. MTB earned a Star since its Years to >MMA of 4 is less than 5 years.

Other: MTB is both an S&P 500 Dividend Aristocrat and a member of The Broad Dividend Achievers™ Index. MTB's loan portfolio has a history of profitability and is considered to have good credit quality. The company operates in a highly competitive and fragmented industry, but
is able to produce relatively stable financial results. As assets reprice at lower rates,
MTB's net interest margin will come under pressure in 2008. Some analysts believe that MB will have to take an impairment charge on its 20% stake in BayView Lending, a commercial lender
that securitizes loans.
BayView Lending earnings have been declining.

Conclusion: MTB earned a Star in the Fair Value section, earned a net of zero Stars in the Dividend Analytical Data section and earned two Stars in the Dividend Income vs. MMA section for a net total of 3 Stars. This quantitatively rates MTB as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price could go up to $81.65 before MTB's NPV MMA Diff. drops to the $3,000 NPV MMA Diff. I like to see. At that price MTP would yield 3.43%. I placed MTB "On The Shelf" earlier this year. In effect, I am not making any additional purchases until MTB proves itself to be a worthy investment or as a stock that needs to be sold. To date, I have seen nothing that change this classification.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I owned shares of MTB (0.9% of my Income Portfolio).

What are your thoughts on MTB?


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