Cullen Frost Bankers (CFR) Stock Looks Cheap On Fair Value Yet Rich On Earnings
Cullen/Frost Bankers has almost doubled shareholders' money over the past three years, yet valuation signals are split, with an Excess Returns intrinsic value estimate suggesting the stock trades at a sizable discount while earnings based multiples lean expensive and the broader checks do not flag a clear bargain.
- Cullen/Frost Bankers has returned about 95.4% over the last three years, which puts extra focus on whether the current share price still leaves much room for further value creation.
- The key support for the current valuation can be the bank's ability to sustain attractive returns on equity relative to its funding costs. A material risk is that changes in credit quality or funding costs eat into those returns and weaken the investment case.
- The broader valuation framework, where Cullen/Frost Bankers scores 2 out of 6, leans toward the stock looking relatively expensive rather than like a clear bargain.
The stock's next move may depend on whether investors put more weight on the discounted intrinsic value estimate or on the richer picture from market based multiples and the low value score.
Compare Cullen/Frost Bankers' mixed valuation signals with a curated set of banks and financial stocks on 52 high quality undervalued stocks to see how other potential opportunities stack up in terms of price and quality.
Does Cullen/Frost Bankers Look Undervalued on Excess Returns?
The Excess Returns model looks at how much value Cullen/Frost Bankers can create above its cost of equity, based on expected profitability and balance sheet strength. For this stock, the model relies heavily on analyst projections for both earnings and book value over the long run.
Cullen/Frost Bankers is modeled with a stable EPS of $11.89 per share on a stable book value base of $79.61 per share, both drawn from analyst estimates. The average return on equity of 14.94% is compared with an equity cost of $5.76 per share, which implies an excess return of $6.13 per share. When those excess returns are projected on the current book value of $72.04 per share and discounted, the Excess Returns approach points to an intrinsic value of about $253 per share. Relative to the current share price, this indicates a discount of roughly 35.7%, which suggests the stock screens as undervalued on this method.
On the Excess Returns model, Cullen/Frost Bankers appears undervalued, with the market price sitting well below the estimated intrinsic value.
Our Excess Returns analysis suggests Cullen/Frost Bankers is undervalued by 35.7%. Track this in your watchlist or portfolio, or discover 52 more high quality undervalued stocks.
Does Cullen/Frost Bankers Look Pricey on Earnings?
P/E is usually a useful yardstick for banks, and Cullen/Frost Bankers is no exception since earnings power is central to the story. On this measure, the stock trades on a P/E of about 15.1x, compared with an industry average for banks of around 11.9x and a peer average near 11.9x. That puts Cullen/Frost Bankers at a clear premium to many listed banking peers.
The tailored fair P/E ratio for Cullen/Frost Bankers is estimated at about 11.7x, which is closer to the broader peer group than to the current market multiple. The gap between the current 15.1x and this fair ratio suggests investors are paying a richer price than the model implies based on factors such as sector, size and risk profile.
On the P/E multiple, Cullen/Frost Bankers stock appears expensive compared with both its fair ratio and banking peers.
See what the numbers say about this price — find out in our valuation breakdown.
The Cullen/Frost Bankers Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where Cullen/Frost Bankers' valuation puzzle leaves off by explaining what would need to happen to its growth, margins and earnings for the stock to be worth significantly more or less than today. Rather than relying on a single multiple or model, each narrative lays out the key drivers behind its view of fair value so you can compare those assumptions with Cullen/Frost Bankers' actual results over time on the Community page.
If you have a clear, numbers based view on where Cullen/Frost Bankers' growth, margins and execution go from here, consider sharing a Narrative so other investors can follow your thesis as new results are reported.
This is a chance to add your voice to the Simply Wall St community and put a transparent case on Cullen/Frost Bankers' stock into the spotlight over time.
Do you think there's more to the story for Cullen/Frost Bankers? Head over to our Community to see what others are saying!
The Bottom Line
Cullen/Frost Bankers screens as undervalued on the Excess Returns intrinsic value estimate, yet market multiples point to the stock trading on the expensive side. The gap reflects a model that focuses on long run excess returns on equity versus a market view that leans more on current growth expectations, sentiment and where comparable banks trade. Broader checks remain cautious despite the intrinsic value signal. The key question is whether Cullen/Frost Bankers can sustain returns on equity that justify both the premium P/E and the implied discount in the intrinsic value estimate.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com