Tech, Media And Telecom Banking Will Strengthen Operational Resilience

Key Takeaways

• Specialized industry verticals and digital strategies are key to driving growth in commercial segments and deposits, boosting revenue and net interest income.
  
• Share repurchase programs and strategic financial decisions, reflecting management's confidence, aim to enhance EPS and stabilize or improve net margins.
  
• Uncertainty and potential rate cuts threaten First Citizens BancShares' earnings, with challenges in credit exposure and specific portfolios risking elevated losses.

Catalysts

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

• First Citizens BancShares is focusing on growth in its Commercial Bank and SVB Commercial segments, particularly through specialized industry verticals such as tech, media, and telecom, which are expected to drive future loan growth and, consequently, revenue.
  
• The company is leveraging its strong balance sheet and liquidity position to continue share repurchase programs, which are expected to improve earnings per share (EPS) significantly by reducing the number of shares outstanding.
  
• First Citizens anticipates further growth in deposits through its Direct Bank and General Bank, using digital strategies and proactive marketing to attract and retain clients, potentially enhancing net interest income as deposit rates decline.
  
• Strategic decisions such as terminating the loss share agreement with the FDIC and issuing new debt at attractive terms reflect management’s confidence in asset quality and financial flexibility, potentially stabilizing or improving net margins.
  
• The company is investing in technology and risk management to support future growth and operational efficiency, likely aiming to optimize operating expenses and improve long-term net margins.

First Citizens BancShares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Citizens BancShares's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.1% today to 23.1% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $208.13) by about May 2028, down from $2.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 9.7x 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 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.43%, as per the Simply Wall St company report.

First Citizens BancShares Future Earnings Per Share Growth

Risks

• The macroeconomic environment remains uncertain due to factors like tariff announcements and market volatility, making it difficult to predict future impacts on First Citizens BancShares' earnings and growth prospects. This could negatively affect revenue and net margins.
  
• Lower net interest income guidance due to increased likelihood of rate cuts implies potential pressure on earnings as lower rate environments may squeeze net interest margins.
  
• The decision to terminate the loss share agreement with the FDIC may increase exposure to potential credit losses from the acquired SVB portfolio, which could impact net earnings if the anticipated credit quality does not hold.
  
• The company's asset-sensitive balance sheet could face challenges if interest rates are cut multiple times, potentially reducing net interest income, which is core to the bank's revenue model.
  
• Credit concerns remain around specific portfolios like commercial real estate and investor-dependent sectors, which could see elevated losses and pressure earnings through higher charge-offs.

Valuation

• The analysts have a consensus price target of $2174.583 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 $2400.0, and the most bearish reporting a price target of just $1900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.1 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 7.4%.
• Given the current share price of $1778.04, the analyst price target of $2174.58 is 18.2% 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.