Valley National Bank trades at $14.15 and has moved in lockstep with the market. Its shares have returned 5.1% over the last six months while the S&P 500 has gained 7.2%.
Is there a buying opportunity in Valley National Bank, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why is Valley National Bank not exciting?
We don’t have much confidence in Valley National Bank. Here are three reasons you should be careful with VLY, plus one stock we’d rather own.
1. Low net interest margin reveals weak loan book profitability
Net interest margin (NIM) serves as a critical gauge of a bank’s fundamental profitability by showing the spread between interest income and interest expenses. It’s essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, we can see that Valley National Bank’s net interest margin averaged a subpar 3.1%, reflecting its high servicing and capital costs.
2. EPS barely growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Valley National Bank’s EPS grew at a weak 1.8% compounded annual growth rate over the last five years, lower than its 10.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Projected TBVPS growth is slim
A bank’s tangible book value per share (TBVPS) increases when it generates higher net interest margins and keeps credit losses low, allowing it to compound shareholder value over time.
Over the next 12 months, Consensus estimates call for Valley National Bank’s TBVPS to grow by 3.5% to $10.51.
Final judgment
Valley National Bank’s business quality ultimately falls short of our standards. That said, the stock currently trades at 1× forward P/B (or $14.15 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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