Expanding CIT And SVB Capabilities Will Strengthen Customer Relations Despite Margin Pressures

Key Takeaways

• Expanding capabilities from acquisitions aims to enhance customer relationships and drive growth, while focusing on liquidity improvements and reducing funding costs.
  
• Streamlining operations and technology aims to boost efficiency, optimizing capital structure and potentially increasing profitability and earnings per share.
  
• Potential rate cuts, expense increases, and regulatory costs could compress margins and destabilize revenues while higher credit losses threaten net earnings.

Catalysts

Operates as the holding company for First-Citizens Bank & Trust Company that provides retail and commercial banking services to individuals, businesses, and professionals.

• The company plans to continue expanding new capabilities acquired from CIT and SVB across their organization, which should enhance customer relationships and potentially drive revenue growth.
  
• They are investing in attracting and developing their workforce to support growth, suggesting a focus on maintaining and potentially improving operational efficiency, which may impact net margins.
  
• The focus on optimizing liquidity and capital positions alongside a strategy of shifting high-cost deposits off-balance sheet could result in reduced funding costs, positively impacting net interest margin and earnings.
  
• Implementing further share repurchases aims at optimizing capital structure, which can increase earnings per share.
  
• Continued focus on operational efficiency through simplifying their operating environment and streamlining technology platforms is intended to leverage the company’s increasing scale, potentially improving net margins and overall profitability.

First Citizens BancShares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Citizens BancShares's revenue will decrease by -0.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 29.1% today to 22.4% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $193.65) by about January 2028, down from $2.7 billion 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 14.9x on those 2028 earnings, up from 11.0x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 8.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

First Citizens BancShares Future Earnings Per Share Growth

Risks

• Concerns exist due to the slowdown in the tech and healthcare sector, with the macro environment dragging on originations, which could negatively impact loan growth and revenues.
  
• Fluctuations in net interest income caused by potential rate cuts or lower accretion could lead to revenue instability and impact earnings.
  
• Increases in noninterest expenses related to higher personnel, technology projects, and marketing could compress net margins if not matched by corresponding revenue growth.
  
• Anticipated stress in commercial finance and investor-dependent portfolios could lead to higher credit losses and impact net earnings.
  
• Regulatory costs and the need to meet Category 3 expectations may drive up operating expenses, impacting net margins if not managed efficiently.

Valuation

• The analysts have a consensus price target of $2475.5 for First Citizens BancShares 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 $2700.0, and the most bearish reporting a price target of just $2000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.2 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $2179.18, the analyst's price target of $2475.5 is 12.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.