Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 12.5% over the past six months. At the same time, the S&P 500 was up 4.8%.
Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. On that note, here are three bank stocks best left ignored.
Webster Financial (WBS)
Market Cap: $11.63 billion
Founded during the Great Depression in 1935 and evolving into a major Northeastern financial institution, Webster Financial (NYSE:WBS) is a bank holding company that provides commercial banking, consumer banking, and employee benefits solutions through its Webster Bank and HSA Bank division.
Why Does WBS Worry Us?
- Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Forecasted net interest income decline of 8.1% for the upcoming 12 months implies demand will fall off a cliff
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
At $72.35 per share, Webster Financial trades at 1.2x forward P/B. If you’re considering WBS for your portfolio, see our FREE research report to learn more.
German American Bancorp (GABC)
Market Cap: $1.62 billion
Founded in 1910 during a wave of community banking expansion in the Midwest, German American Bancorp (NASDAQ:GABC) is a financial holding company that provides banking, wealth management, and insurance services across southern Indiana and Kentucky.
Why Do We Think Twice About GABC?
- Efficiency ratio is forecasted to remain flat over the next year, suggesting its fixed cost leverage is currently maxed out
- Performance over the past two years shows its incremental sales were less profitable, as its 2% annual earnings per share growth trailed its revenue gains
- Muted 1.5% annual tangible book value per share growth over the last five years shows its capital generation lagged behind its banking peers
German American Bancorp is trading at $43.21 per share, or 1.3x forward P/B. Check out our free in-depth research report to learn more about why GABC doesn’t pass our bar.
First Busey (BUSE)
Market Cap: $2.25 billion
Tracing its roots back to 1868 during America's post-Civil War reconstruction era, First Busey (NASDAQ:BUSE) is a bank holding company that provides commercial and retail banking, wealth management, and payment technology solutions across Illinois, Missouri, Florida, and Indiana.
Why Is BUSE Not Exciting?
- Inferior net interest margin of 3.3% means it must compensate for lower profitability through increased loan originations
- Annual earnings per share growth of 4.9% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Estimated tangible book value per share decline of 3.4% for the next 12 months implies a challenging profitability environment
First Busey’s stock price of $26.29 implies a valuation ratio of 1x forward P/B. To fully understand why you should be careful with BUSE, check out our full research report (it’s free).
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