Summary
- Jefferies Financial announced its Q2 earnings and our analysis is that the stock is still selling well below its inherent true value.
- We have raised our valuation to $32.08, up from $29.38 in our previous article, including a Sum-of-the-Parts analysis. The stock upside is 50% from today's price.
- The company continued its aggressive buyback program, repurchasing another $150 million worth of stock. This is a continued major catalyst to push the stock to its true value.
Jefferies Financial Group Remains Significantly Undervalued
Jefferies Financial Group (JEF) is still selling well below its inherent true value, even after publishing its latest financial statements. This article shows how we derived this true value calculation for the stock, building on the original analysis in our article in Seeking Alpha on April 23, 2019, "Jefferies Financial Group is Deeply Undervalued." Since that article was written, the stock rose 7% to $21.43 as of July 9, 2019. At that time, we argued the stock was worth $29.38 per share. Now we believe the stock is worth at least $32.08 per share.
On July 3, 2019, JEF published its financial statements, including its book value and tangible book value, which rose 1.37% to $33.98 per share (book value per share) and up 2.21% to $25.88 per share (tangible book value):
Source: Hake computations, based on SEC filings July 3, 2019, by Jefferies
So JEF is still trading well below its book value and tangible book value:
Source: Hake
In addition, on a historical basis, as I pointed out in the last article, the stock is still trading well below its historical levels of Price/Book Value, Price/Tangible Book Value and its historical Dividend Yield:
Source: Hake
Valuation. Based on these ratios, the updated valuation for JEF can be computed:
Source: Hake estimates
These tables show that the updated valuation estimate for JEF is $23.98 based on the historical P/BV (using a ratio of 0.70x for the past 5.5 years), and $38.29 based on historical dividend yield (using a 2.3% average dividend yield for the past 5 years). In addition, using the historical price/tangible book value, the stock should be trading at $27.05 (using a historical ratio of 1.05x).
