Sustainable Growth Ahead As Critical Shifts Boost Earnings And Balance Sheet Resilience

Key Takeaways

• Strategic reductions in SNC exposure and increased banker recruitment support sustainable loan portfolio and revenue growth.
  
• Lower deposit costs and investments in noninterest income lines enhance margins and earnings prospects amid robust capital management.
  
• Declining loans and deposits, criticized commercial loans, and potential interest rate cuts could constrain revenue, margins, and growth prospects for Hancock Whitney.

Catalysts

Operates as the financial holding company for Hancock Whitney Bank that provides traditional and online banking services to commercial, small business, and retail customers.

• Strategic reduction in SNC exposure has reached peer levels a year ahead of schedule, which will eliminate this headwind to loan growth and is expected to positively impact revenue growth through a more sustainable loan portfolio.
  
• Increased recruitment of bankers is anticipated to support future balance sheet growth, potentially boosting loan origination volumes which should enhance revenue growth.
  
• Lower projected cost of deposits and improved deposit mix could enhance net interest margins (NIM) and net interest income (NII), especially with anticipated rate cuts, improving net margins and overall earnings.
  
• Strategic investments in fee income lines have shown strong returns, and expectations for noninterest income growth of 6-7% in 2024 compared to 2023 suggest future revenue increases.
  
• Continued share repurchases and capital management efforts, combined with already strong capital ratios, could improve earnings per share (EPS) by reducing the number of shares outstanding, while maintaining capital position to support future growth.

Hancock Whitney Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hancock Whitney's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.1% today to 30.1% in 3 years time.
• Analysts expect earnings to reach $485.7 million (and earnings per share of $5.68) by about November 2027, up from $386.5 million 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 2027 earnings, up from 12.7x today. This future PE is greater than the current PE for the US Banks industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 0.21% 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.

Hancock Whitney Future Earnings Per Share Growth

Risks

• The decline in loans by $450 million due to decreased Shared National Credits (SNC) exposure and higher payoffs could impact revenue growth negatively as their loan portfolio contracts.
  
• Deposits were down during the quarter, and higher outflows could increase costs or limit funding, thereby affecting net margins if not managed properly.
  
• The increase in criticized loans, especially in the commercial sector, and the potential uncertainty in asset quality even within a strong portfolio are risks that could affect earnings negatively if they lead to higher provisioning.
  
• The expectation of interest rate cuts could reduce loan yields, signaling potential pressure on net interest income which could impact overall profitability if not offset by other revenue growth.
  
• Reduction in the construction and development loan book (C&D) and challenges with CRE payoffs due to aggressive private equity could limit growth prospects, potentially impacting future earnings if these strategic areas don't stabilize.

Valuation

• The analysts have a consensus price target of $62.09 for Hancock Whitney 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 $70.0, and the most bearish reporting a price target of just $59.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.6 billion, earnings will come to $485.7 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 5.9%.
• Given the current share price of $57.2, the analyst's price target of $62.09 is 7.9% higher. 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.