Loan Expansion And Cost Control Will Secure Future Strength

Key Takeaways

• Strategic focus on capital deployment and potential M&A could enhance revenue streams and drive future earnings.
  
• Disciplined expense management and share repurchases could improve net margins and boost EPS growth.
  
• Increasing credit loss provisions, competitive pressures, and economic disruptions pose risks to Trustmark's loan growth, profitability, and revenue stability.

Catalysts

Operates as the bank holding company for Trustmark National Bank that provides banking and other financial solutions to individuals and corporate institutions in the United States.

• Trustmark's expected increase in loans held for investment and stable deposit growth in 2025 could boost revenue and net interest income, supporting overall earnings growth.
  
• The strategic focus on capital deployment through organic loan growth, market expansion, and potential mergers and acquisitions (M&A) could enhance revenue streams and drive future earnings.
  
• Ongoing disciplined expense management, including a projected low single-digit increase in noninterest expenses, could help improve net margins by controlling costs.
  
• Trustmark's share repurchase program provides potential EPS growth, as buybacks reduce the number of outstanding shares, boosting EPS if earnings remain stable or grow.
  
• Despite potential rate cuts, Trustmark's efforts to maintain a cumulative deposit beta in the mid-30s and the repricing of the fixed-rate loan book could lead to net interest margin expansion, enhancing net interest income and overall profitability.

Trustmark Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Trustmark's revenue will grow by 30.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 40.5% in 3 years time.
• Analysts expect earnings to reach $486.4 million (and earnings per share of $8.13) by about April 2028, up from $60.7 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 6.0x on those 2028 earnings, down from 34.1x today. This future PE is lower than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Trustmark Future Earnings Per Share Growth

Risks

• The provision for credit losses and allowance for credit losses have increased, indicating potential future credit quality deterioration, which could negatively impact earnings.
  
• The uncertain interest rate environment may lead to changes in client behavior, impacting loan growth and net interest income projections.
  
• Rising competition has put pressure on pricing for new deals, which could compress net interest margins and reduce profitability.
  
• Economic disruptions, such as tariffs and administrative policies, pose risks to client projects and could slow down growth, impacting revenue.
  
• Maturing CRE loans present a risk in the second half, which may lead to an increase in payoffs rather than new originations, affecting loan growth and interest income.

Valuation

• The analysts have a consensus price target of $41.45 for Trustmark 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 $45.25, and the most bearish reporting a price target of just $37.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $486.4 million, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 6.2%.
• Given the current share price of $34.09, the analyst price target of $41.45 is 17.8% 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.