Expansion Into Sustainable Lending And Tech Investments Will Diversify Revenue Streams By 2026

Key Takeaways

• Expanding sustainable lending and focusing on C&I loans could enhance asset yields, drive revenue growth, and improve earnings.
  
• Growing political deposits and diversifying revenue streams with trust and tech investments may bolster net interest margins and long-term earnings.
  
• Political deposit dependency and funding volatility could impact Amalgamated Financial's future earnings and net interest margins, requiring effective cost and revenue management.

Catalysts

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

• Amalgamated Financial plans to expand its sustainable lending business, which is expected to provide a pipeline of higher-priced loans that will enhance asset yields and contribute to revenue growth.
  
• The political fundraising ecosystem is expected to continue growing, offering opportunities for Amalgamated to increase political deposits, potentially improving net interest margins with a more favorable funding mix.
  
• Investments in the trust business and technology infrastructure are anticipated to generate more revenue and better diversify revenue streams by 2026, which would positively impact earnings in the longer term.
  
• The bank's focus on commercial real estate and C&I loan growth, including the development of a predictable C&I lending business, aims to balance the loan portfolio and increase returns on assets, thereby driving revenue and earnings growth.
  
• Strong capital base growth and strategic reinvestment plans, including potential share buybacks and increased dividends, position Amalgamated to deliver enhanced shareholder value, which could improve earnings per share.

Amalgamated Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amalgamated Financial's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 35.0% today to 33.5% in 3 years time.
• Analysts expect earnings to reach $142.5 million (and earnings per share of $4.67) by about January 2028, up from $106.4 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 10.9x on those 2028 earnings, up from 9.8x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

Amalgamated Financial Future Earnings Per Share Growth

Risks

• Amalgamated Financial's reliance on political deposit inflows post-election cycles presents risks of volatility in the funding mix and net interest margin, potentially impacting future earnings.
  
• High spending linked to political cycles can result in temporary deposit outflows, affecting the cost of funds and revenue stability if not managed effectively.
  
• The bank's move to sell securities at a nominal gain to fund loan growth can lead to losses if not well-timed, impacting net margins and overall balance sheet strength.
  
• Restructuring the loan portfolio due to low-yielding loans implies existing loan performance issues, which may impact net income if similar portfolio adjustments are needed in the future.
  
• Achieving growth in the trust business and sustainable lending hinges on heavy investment and talent acquisition, and such initiatives may not yield significant revenue increases until well into 2026, affecting near-term revenue growth.

Valuation

• The analysts have a consensus price target of $43.5 for Amalgamated Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $424.8 million, earnings will come to $142.5 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of $34.02, the analyst's price target of $43.5 is 21.8% 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.