GuruFocus estimates ICICI Bank shares are worth substantially more than their New York market price, but a low predictability rating and mixed insider activity temper the bullish case.
ICICI Bank is trading below the values implied by several valuation models, according to a new analysis from GuruFocus that places the Indian lender’s shares at about $29.48 in New York trading. The research estimates the stock’s earnings-based discounted cash flow value at $41.79 a share and its free cash flow-based value at $43.08, both well above the current market price. The gap suggests the shares may be undervalued, although the same review notes that the stock’s recent performance has been uneven, with a gain of 5.1% over the past week but a decline of 9.8% over the past year.
The earnings-based model assumes ICICI Bank will be able to compound earnings per share at 23.3% a year over the next decade before easing to a 4% terminal growth rate. That calculation uses a 12% discount rate, derived from the 10-year Treasury yield plus a risk premium, and produces a valuation that implies a margin of safety of 29.5%. GuruFocus says the approach is built on adjusted earnings rather than one-off items, on the basis that share prices tend to track earnings more closely than free cash flow.
A separate model based on projected free cash flow produces a similar result, valuing the stock at $43.08 a share and implying a margin of safety of 31.6%. GuruFocus also points to its GF Value measure, which it places at $32.36, as a third check on the stock’s worth. Taken together, the three approaches all point in the same direction: the shares look inexpensive relative to the models being used.
There are, however, clear limits to the exercise. GuruFocus gives ICICI Bank a GF Score of 77 out of 100, which points to respectable overall quality, but the stock’s predictability rank is only two out of five stars, indicating that the valuation inputs may be less dependable than for companies with steadier earnings patterns. The site also notes mixed signals from investor positioning, including some guru buying and selling as well as $3.0 million of insider share sales over the past year. For investors, that leaves the stock looking cheap on paper, but not without caveats.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
