NYC Headquarters And C-PACE Originations Will Power Future Success

Key Takeaways

• Diversified deposit growth and increased C-PACE originations support revenue expansion and asset diversification.
  
• Aggressive share repurchases and new headquarters investment aim to boost EPS, attract talent, and enhance operational efficiency.
  
• Macroeconomic uncertainties, credit risks, and political dynamics threaten Amalgamated Financial's revenue, margins, and earnings consistency.

Catalysts

Operates as the bank holding company for Amalgamated Bank that provides commercial and retail banking, investment management, and trust and custody services in the United States.

• Amalgamated Financial's strong and diversified deposit growth, led by broad-based customer segments and significant political deposit increases, is expected to support revenue growth and net interest income expansion.
  
• The planned expansion of C-PACE originations aims at enhancing asset diversification and delivering attractive yields, which is anticipated to contribute to revenue growth and improved earnings.
  
• Aggressive share repurchase programs and consistent dividend payouts are strategic actions expected to boost earnings per share (EPS) by reducing shares outstanding.
  
• The move to a state-of-the-art New York City headquarters is a long-term investment aimed at attracting top-tier talent, anticipated to improve operational efficiencies and potentially enhance net margins.
  
• Improved capital ratios and liquidity through organic capital generation and deposit growth position Amalgamated well for strategic growth or acquisitions, likely impacting revenue and earnings positively.

Amalgamated Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amalgamated Financial's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.3% today to 39.5% in 3 years time.
• Analysts expect earnings to reach $145.0 million (and earnings per share of $4.77) by about May 2028, up from $104.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, up from 8.5x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 0.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Amalgamated Financial Future Earnings Per Share Growth

Risks

• The macroeconomic and social environment is uncertain, with potential federal government funding reductions impacting some clients, possibly affecting revenue and margins.
  
• The Q1 earnings pressure was expected to be the highest for the year, indicating potential challenges in maintaining consistent profitability and earnings growth.
  
• A recently added $8.3 million solar loan categorized as nonaccrual indicates potential credit risks in the Clean Energy segment, which could impact net margins if resolutions are delayed or unsuccessful.
  
• The increase in nonperforming assets, driven by certain sector loans, could lead to higher future allowances for credit losses, affecting overall earnings.
  
• Uncertain political dynamics, such as executive orders and changes in federal funding allocation, present risks to Amalgamated’s not-for-profit and political deposit segments, potentially impacting future deposits and thereby revenue.

Valuation

• The analysts have a consensus price target of $34.5 for Amalgamated Financial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $39.0, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $367.7 million, earnings will come to $145.0 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $28.76, the analyst price target of $34.5 is 16.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.