2023-04-09 04:28:39 ET
Summary
- Regional banks settled at a fresh weekly low close last week.
- Lower interest rates have not helped KRE rebound, but I see upside fundamental potential with Synovus Financial.
- A low earnings multiple outweighs a bearish chart.
Regional banks just went out at a fresh 52-week low close. The rebound in the broader market has done little for the embattled group of small financial institutions. Falling interest rates over the past few weeks, while aiding many of the regional banks’ balance sheets, hasn’t led to the bulls making a charge.
I see similar trends in Synovus Financial (SNV), but with an impressive earnings profile, I view the stock as a buy on valuation.
KRE: Where's The Rebound?
According to Bank of America Global Research, Synovus Financial is a Columbus, Georgia-based bank holding company with over $57 billion in assets and a regional footprint that spans the Southeast and the gulf coast. It operates through four segments: Community Banking, Wholesale Banking, Consumer Banking, and Financial Management Services.
The $4.3 billion market cap Regional Banks industry company within the Financials sector trades at a low 6.0 trailing 12-month GAAP price-to-earnings ratio and pays a high 5.2% dividend yield, according to The Wall Street Journal.
Synovus was recently highlighted by CFRA Research as one of a host of regional banks that is poised to rebound. Before that, the firm barely missed Q4 earnings estimates with a slight top-line beat. The miss was driven by higher credit loss provisions, but the management team also authorized a $300 million share buyback program.
On valuation , analysts at BofA see earnings falling 7% this year before recovering at a solid rate in 2024. Per-share profits are seen as moderating to the 5% rate by 2025. I fear these numbers will fall given tighter lending standards and deposits fleeing small banks for larger money-center firms, so its upcoming earnings report on April 20 will be critical to watch.
Still, dividends are expected to rise modestly in the coming quarters while the stock trades at low earnings multiples. With a yield now above 5%, dividend investors might consider this name in the small/value segment of their portfolios.
Overall, if we assume $4.20 of 2023 earnings (below the bank’s guidance) with an 8x P/E (below the 10.8x 5-year average), then the stock should be near $34. So, I see the stock has a buy on valuation even using conservative figures.
Synovus: Earnings, Valuation, Dividend Yield Forecasts
Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q1 2023 earnings date of Thursday, April 20 BMO with a conference call immediately after the numbers cross the wires. You can listen live here . There is also a shareholder meeting later this month that could draw some volatility.
Corporate Event Risk Calendar
The Options Angle
Digging into the upcoming earnings reports, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $1.27 which would be an 18% rise from $1.08 of per-share profits earned in the same period a year ago. The bulls can point to a strong earnings beat rate history – Synovus has topped the consensus number in 10 of the past 11 quarters, though the most recent report was a miss. The stock price reaction history is not as strong, however.
This time around, options traders have priced in a 6.5% earnings-related stock price swing when analyzing the at-the-money straddle expiring soonest after the 4/20 reporting date. That’s on the expensive side compared to historical moves, but following the banking crisis, there is added uncertainty this time around. Still, I would avoid options at that premium.
SNV: Pricey Options Ahead Of Earnings
The Technical Take
SNV’s chart is much like KRE’s. Notice in the graph below that shares are below the key $34 to $36 range. So long as the stock is under that battleground area, it’s hard to like the company technically. Also, a massive volume surge accompanied the breakdown. Moreover, the long-term 200-day moving average is decidedly negatively sloped.
Support doesn’t enter the picture until the low $20s, and the current consolidation appears to be more of a continuation pattern in my view rather than an upside reversal. I would avoid the stock technically.
SNV: Below A Key Price Zone
The Bottom Line
I am a buy on Synovus. I like the earnings growth, valuation, and dividend yield, but also recognize that the trend lower on the chart is a lot to overcome. In this case, the valuation and earnings pictures outweigh the chart.
For further details see:
Synovus: Earnings Growth Expected, Shares Trade At A Long-Term Discount