Resumed Share Repurchases Will Support Future Earnings Amid Growth Opportunities

Key Takeaways

• Growth in commercial real estate and dealer floor plans may boost revenues, but faces competitive pressures limiting potential gains.
  
• Expense management improvements and share repurchases could enhance net margins and EPS amid anticipated interest margin narrowing.
  
• Strong earnings, capital growth, and credit stability position First Hawaiian for share price support, aided by proactive deposit management and resumed share repurchases.

Catalysts

Operates as a bank holding company for First Hawaiian Bank that provides a range of banking products and services to consumer and commercial customers in the United States.

• First Hawaiian anticipates growth opportunities primarily in the commercial real estate space and dealer floor plans, suggesting that potential expansions in these areas could lead to higher revenues, though this might be challenged by competitive pressures.
  
• The bank expects interest margins to narrow due to anticipated rate cuts by the Federal Reserve, which could lead to pressure on net interest income and overall margins.
  
• First Hawaiian plans to resume share repurchases in the fourth quarter, indicating a shift in capital allocation priorities that could impact earnings per share (EPS) positively, despite uncertain revenue growth.
  
• The bank's ongoing expense management and efficiency improvements post-investments are expected to stabilize future expense growth, potentially enhancing net margins if revenue growth aligns.
  
• Potential challenges include maintaining noninterest-bearing deposit levels and effectively managing deposit migration, which could impact the bank's overall funding costs and net interest margins.

First Hawaiian Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Hawaiian's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.8% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $230.5 million (and earnings per share of $1.82) by about December 2027, up from $225.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $263.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2027 earnings, up from 15.6x today. This future PE is greater than the current PE for the US Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

First Hawaiian Future Earnings Per Share Growth

Risks

• First Hawaiian is showing strong earnings and growing capital levels, which could positively impact earnings and support share price stability or growth.
  
• The company's deposit costs are stabilizing, and they are proactively managing deposit rates, suggesting potential for maintaining net margins amid interest rate changes.
  
• Solid credit performance with well-collateralized loans and strong loan loss coverage provides stability to First Hawaiian's revenue and minimizes risks to net margins from credit losses.
  
• The Hawaii economy remains resilient, with low unemployment and stable housing markets, which could support steady revenue streams and reduce downside risks to earnings.
  
• First Hawaiian intends to resume share repurchases, which can provide support to the stock price by reducing the share count and potentially increasing earnings per share.

Valuation

• The analysts have a consensus price target of $26.0 for First Hawaiian 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 $30.0, and the most bearish reporting a price target of just $22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $877.0 million, earnings will come to $230.5 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 5.9%.
• Given the current share price of $27.47, the analyst's price target of $26.0 is 5.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.