Asset Quality And Loan Growth Will Sustain Future Performance

Key Takeaways

• Strong growth in net interest income and loan expansion is expected to boost future earnings and net margins.
  
• Expansion in Wealth Management and strategic LIHTC loan securitizations position the company for reliable revenue growth and enhanced liquidity.
  
• Economic uncertainties and high interest rates may slow loan growth and impact revenue, while reliance on deposit growth could affect liquidity and net margins.

Catalysts

A multi-bank holding company, provides commercial and consumer banking, and trust and asset management services.

• Strong growth in net interest income driven by margin expansion and robust loan growth is expected to continue, positively impacting future earnings.
  
• Continued expansion of the Wealth Management business, with assets under management increasing by $1 billion or 20%, is anticipated to provide a reliable and recurring revenue stream, enhancing future revenue growth.
  
• Strategic execution of LIHTC loan securitizations is planned to enhance liquidity, strengthen capital markets revenue, and manage growth, contributing positively to net interest margin and earnings.
  
• Focus on maintaining and further improving asset quality, with strong reserves against potential future losses, positions the company to sustain profitability and enhance net margins.
  
• Anticipated reductions in deposit costs combined with a liability-sensitive balance sheet set the stage for potential future interest rate cuts to improve net interest margin, supporting future earnings growth.

QCR Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QCR Holdings's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 34.5% today to 28.2% in 3 years time.
• Analysts expect earnings to reach $130.2 million (and earnings per share of $7.58) by about January 2028, up from $113.8 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 15.2x on those 2028 earnings, up from 11.7x 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 grow by 0.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.32%, as per the Simply Wall St company report.

QCR Holdings Future Earnings Per Share Growth

Risks

• The potential slow down in swap fee revenue due to higher long-term interest rates could impact capital markets revenue, a significant component of noninterest income.
  
• The expiration of interest rate caps in Q1 2025 is expected to reduce net interest margin, affecting overall interest income.
  
• High levels of nonperforming assets, influenced by a few specific loans, might pressure asset quality further and require increased provisions, potentially impacting net income and earnings.
  
• Cautious customer sentiment in the commercial sector, due to global economic uncertainties and higher interest rates, could slow down loan growth, affecting revenue targets.
  
• Continued reliance on core deposit growth for funding might struggle against prevailing economic conditions, impacting liquidity and possibly increasing costs of funding, thereby affecting net margins.

Valuation

• The analysts have a consensus price target of $97.0 for QCR Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $462.0 million, earnings will come to $130.2 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of $78.77, the analyst's price target of $97.0 is 18.8% 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.