Share Repurchases And Loan Originations Will Shape Future Success

Key Takeaways

• Strong loan originations and deposit growth may drive future revenue and improve net interest income.
  
• Share repurchase program and solid capital levels position CVB Financial for potential acquisitions and enhanced shareholder value.
  
• Declining loans and rising expenses alongside macroeconomic challenges could pressure margins and earnings, with intense rate competition impacting loan growth and valuations.

Catalysts

Operates as a bank holding company for Citizens Business Bank, a state-chartered bank that provides banking and financial services to small to mid-sized businesses and individuals.

• CVB Financial has implemented a $10 million share repurchase program, which may enhance shareholder value and increase earnings per share (EPS) by reducing the number of shares outstanding.
  
• The company's net interest margin expanded significantly due to balance sheet deleveraging and a reduction in wholesale funds, likely improving net margins and future earnings.
  
• There is strong demand and an increase in loan originations for commercial real estate and commercial and industrial (C&I) loans, which could drive future revenue growth.
  
• CVB Financial reports strong deposit pipelines and growth in noninterest-bearing deposits, which might lead to better net interest income and reduced interest expenses, impacting future earnings positively.
  
• The bank maintains substantial capital levels that allow continued share repurchases and potential acquisitions, providing opportunities for future growth in assets and income.

CVB Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CVB Financial's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 39.8% today to 37.5% in 3 years time.
• Analysts expect earnings to reach $214.9 million (and earnings per share of $1.57) by about April 2028, up from $201.8 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 17.0x on those 2028 earnings, up from 12.9x today. This future PE is greater than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 0.39% 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.

CVB Financial Future Earnings Per Share Growth

Risks

• The decline in CVB Financial's total loans, particularly in commercial real estate and dairy and livestock loans, highlights a potential challenge in maintaining loan growth, which could negatively impact future revenues and earnings.
  
• Intense rate competition for high-quality commercial real estate loans may pressure margins, potentially affecting net interest income and earnings.
  
• A forecasted slowdown in real GDP growth and a projected increase in unemployment may create macroeconomic challenges, potentially impacting revenue and profitability.
  
• Decreased demand and a continuing decline in commercial real estate prices could influence loan valuations and loan growth, potentially hurting earnings.
  
• The rise in noninterest expenses, including technology and infrastructure investments, may pressure net margins if not offset by corresponding revenue growth.

Valuation

• The analysts have a consensus price target of $22.2 for CVB 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 $25.0, and the most bearish reporting a price target of just $20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $573.3 million, earnings will come to $214.9 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $18.78, the analyst price target of $22.2 is 15.4% 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.