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Valley National (VLY) Rides on Buyouts & Rates Amid High Costs
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Valley National Bancorp (VLY - Free Report) is well poised to capitalize on a robust loan balance, strategic buyouts and higher interest rates. Yet, a persistent rise in operating expenses and a concentrated loan portfolio are major headwinds.
Valley National’s organic growth trajectory looks impressive. Driven by a continued rise in loan balances, the company’s top line witnessed a CAGR of 17.1% over the last six years (2016-2022). Net loans saw a CAGR of 20.6% over the last five years (ended 2022). Revenues and loans continued to improve in the first three months of 2023. Driven by higher rates, decent loan demand and efforts to improve non-interest income, revenue growth is expected to continue.
Also, VLY has been expanding mainly via acquisitions. Last year, the company acquired Bank Leumi Le-Israel B.M.’s U.S. banking arm, while in 2021, it took over Westchester Bank and the Arizona-based advisory firm Dudley Ventures. These, along with several past acquisitions, are expected to be earnings accretive and help it diversify its revenues and footprint. Given a solid balance sheet position, the company remains well-positioned to grow further on the back of opportunistic buyouts.
However, mounting expenses are a major concern for VLY. Non-interest expenses have recorded a CAGR of 13.6% over the past six years (ended 2022). The rise was primarily due to an increase in equipment expenses and net occupancy. Expenses are expected to remain high as the company expands through acquisitions and invests in revenue growth areas. Management expects expenses to rise in the range of 10.5-12.5% this year.
Also, Valley National’s major part of the loan portfolio comprises commercial real estate and residential mortgages. As of Mar 31, 2023, the company’s loan exposure to these sectors was more than 70%. Though the housing and real estate sectors have been holding up decently, any deterioration in real estate prices in the future will likely pose a threat to the company’s financials.
Analysts seem pessimistic regarding the company’s growth potential. Over the past 30 days, the Zacks Consensus Estimate for VLY’s earnings has been revised 2.5% and 1.7% lower for 2023 and 2024, respectively. The company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Valley National have lost 24.8% compared with the industry's 17.3% decline.
The Zacks Consensus Estimate for HomeTrust Banshares’s current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have lost 6.7% in the past three months.
The consensus mark for JPMorgan's 2023 earnings has been revised 7.1% upward over the past 60 days. In the past three months, JPM shares have rallied 13.8%.
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Valley National (VLY) Rides on Buyouts & Rates Amid High Costs
Valley National Bancorp (VLY - Free Report) is well poised to capitalize on a robust loan balance, strategic buyouts and higher interest rates. Yet, a persistent rise in operating expenses and a concentrated loan portfolio are major headwinds.
Valley National’s organic growth trajectory looks impressive. Driven by a continued rise in loan balances, the company’s top line witnessed a CAGR of 17.1% over the last six years (2016-2022). Net loans saw a CAGR of 20.6% over the last five years (ended 2022). Revenues and loans continued to improve in the first three months of 2023. Driven by higher rates, decent loan demand and efforts to improve non-interest income, revenue growth is expected to continue.
Also, VLY has been expanding mainly via acquisitions. Last year, the company acquired Bank Leumi Le-Israel B.M.’s U.S. banking arm, while in 2021, it took over Westchester Bank and the Arizona-based advisory firm Dudley Ventures. These, along with several past acquisitions, are expected to be earnings accretive and help it diversify its revenues and footprint. Given a solid balance sheet position, the company remains well-positioned to grow further on the back of opportunistic buyouts.
However, mounting expenses are a major concern for VLY. Non-interest expenses have recorded a CAGR of 13.6% over the past six years (ended 2022). The rise was primarily due to an increase in equipment expenses and net occupancy. Expenses are expected to remain high as the company expands through acquisitions and invests in revenue growth areas. Management expects expenses to rise in the range of 10.5-12.5% this year.
Also, Valley National’s major part of the loan portfolio comprises commercial real estate and residential mortgages. As of Mar 31, 2023, the company’s loan exposure to these sectors was more than 70%. Though the housing and real estate sectors have been holding up decently, any deterioration in real estate prices in the future will likely pose a threat to the company’s financials.
Analysts seem pessimistic regarding the company’s growth potential. Over the past 30 days, the Zacks Consensus Estimate for VLY’s earnings has been revised 2.5% and 1.7% lower for 2023 and 2024, respectively. The company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Valley National have lost 24.8% compared with the industry's 17.3% decline.
Image Source: Zacks Investment Research
Bank Stocks Worth Considering
A couple of better-ranked stocks from the banking space are HomeTrust Banshares, Inc. (HTBI - Free Report) and JPMorgan (JPM - Free Report) . Both HTBI and JPM sport a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HomeTrust Banshares’s current-year earnings has been revised 7.7% upward over the past 60 days. Its shares have lost 6.7% in the past three months.
The consensus mark for JPMorgan's 2023 earnings has been revised 7.1% upward over the past 60 days. In the past three months, JPM shares have rallied 13.8%.