BOH is within 3.96% of the one year low and yields 4.80%. According to Value Line Investment Survey, BOH typically trades around 14 times earnings. At a 9.77 P/E ratio, either of two things need to occur:
- BOH earnings will have to come down
- BOH will have to revert back to selling at 14 time earnings
On January 5th, the investment bank Keefe, Bruyette and Woods (KBW) downgraded BOH because of expectations of lower earnings. KBW says that 2009 and 2010 earnings will be $2.60 for each year. This puts BOH's stock price at $36.40 if it were to trade at around 14 times earnings. Conversely, BOH would trade at $56.84 if it were to revert to the mean based on 2008 earnings of $4.06 (The Bank of Hawaii has estimated fourth quarter 2008 earnings of $0.89).
From the perspective of Dow's theory, BOH has three downside targets from the prior peak of $70 in September of 2008:
In the years from 1990 to 1997, BOH has retraced from the peak to between the 2nd and 3rd retracement levels according to Dow’s theory. If applied to the current price action this would bring BOH down to the level of $20.87. This would be the ideal buying point however we must be ready to pull the trigger anywhere between $30.70 and $20.87.
Considering that we're in a bear market it becomes necessary to decide how much an individual wants exposure to a bank in a deflationary environment. Assuming the worst, BOH could be viewed from the perspective of the "long-term" prospects based on the dividend. At the current dividend yield of 4.80%, BOH would double in approximately 15 years. This means that if you're of the buy-and-hold mindset then you would need to retain this stock for 15 years to recoup all that you have initially invested if you reinvest the dividends. This is a more accurate measure of the "long-term" in case you're wrong about the direction of the stock price. Additionally, BOH exhibits a 7 to 10-year cycle for price movement from trough to peak.
In the accompanying chart we can see that there have been two other major bottoms in the BOH’s stock price that were accompanied by a surge in trading volume. The current volume is giving similar indications as the 1990 and 2000 lows. All we need now is a good collapse in the price to reassure us of the opportunity to buy. That opportunity might come in the wake of BOH falling below the 52-week low of $36.32 reached on November 21, 2008.
BOH’s management has consistently rewarded shareholders for their patience and is likely to continue to do so. There are many ways to examine this company, however, be sure that you’re comfortable with investing in a bear market environment similar to 2008 before deciding to make your next purchase. Good luck in your research of this company. Touc.