Mizuho Financial Group (TSE:8411) Stock Trades At A Discount To Fair Value

Mizuho Financial Group has delivered a powerful share price run over the past several years, so the key issue now is whether that move is backed up by the returns it earns on its capital. With a very long stretch of gains already behind it, investors are asking if the current valuation fairly reflects what the bank can continue to earn on the money it puts to work.

• Over the past 5 years, Mizuho Financial Group has returned about 4.9x, which puts real weight on the question of whether its capital returns are strong enough to support that kind of share price change.

• The group's role as a major lender and financial services provider means its valuation is tightly linked to how efficiently it turns deposits and capital into interest income and fee earnings, which can influence how much value it creates for shareholders over time.

• What if you looked at Mizuho Financial Group through its earnings instead? See what Mizuho Financial Group's 13.3x P/E says about the price .

The stock's next move may depend on whether the returns Mizuho Financial Group earns on its capital are sufficient to support where the share price now trades.

If you want to balance Mizuho Financial Group's 5 year return of about 4.9x with other ideas, a focused screener built around 16 high quality undervalued stocks could be useful.

Is Mizuho Financial Group Still Cheap on Excess Returns?

The Excess Returns model looks at how much profit Mizuho Financial Group earns above its cost of equity. Here, the average Return on Equity of 13.82% feeds into a stable earnings figure of ¥792.01 per share on a stable Book Value base of ¥5,731.34 per share. The cost of that equity capital is estimated at ¥343.22 per share, which leaves an excess return of ¥448.79 per share that the model treats as value created beyond the required investor return.

For a bank, that spread between what capital costs and what it earns is the key ingredient. Mizuho Financial Group also has a Dividend Discount Model output that assumes dividends of ¥161.13 per share with an expected growth rate of 5.60%, capped to a long run rate of 0.94%. Those cash distributions are then discounted back to a net present value of ¥3,191.60 per share. Taken together, these approaches suggest the Excess Returns projections put Mizuho Financial Group's estimated intrinsic value substantially above the current share price of ¥7,592.00, which is where the detailed model output becomes useful for context. Find out what Mizuho Financial Group could be worth using our Excess Returns estimate .