Anticipated Loan Growth And Expansion Of Fee-Based Income Will Strengthen Future Performance

Key Takeaways

• Strategic loan growth and improved credit quality management will enhance earnings and revenue, impacting credit risk positively.
  
• Cost-efficient funding and strategic deposit growth will improve net interest margins, driving revenue through reduced reliance on expensive funding.
  
• Potential reductions in net interest margin, loan growth challenges, and macroeconomic headwinds could negatively affect Veritex's profitability and financial stability.

Catalysts

Operates as the bank holding company for Veritex Community Bank that provides various commercial banking products and services to small and medium-sized businesses, and professionals.

• Anticipated loan growth in 2025, driven by disciplined client acquisition and robust pipelines, is expected to positively impact revenue.
  
• The focus on cost-efficient funding and repricing liabilities should improve net margins by reducing the reliance on wholesale funding.
  
• Improved credit quality management leading to a reduction in criticized loans will enhance earnings by decreasing credit risk and potential future charge-offs.
  
• Execution on strategic deposit growth and remixing, reducing the cost of deposits, is expected to provide a favorable shift in net interest income and margins.
  
• Strategic endeavors in enhancing fee-based income from treasury management, commercial banking, and government guaranteed loans are expected to contribute to stronger non-interest income, driving overall revenue growth.

Veritex Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Veritex Holdings's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.1% today to 29.3% in 3 years time.
• Analysts expect earnings to reach $152.6 million (and earnings per share of $2.79) by about January 2028, up from $85.9 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 14.0x on those 2028 earnings, down from 17.1x 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 0.18% 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.

Veritex Holdings Future Earnings Per Share Growth

Risks

• Decreases in net interest margin (NIM) may present a challenge, as a lower NIM can result in reduced net income and profitability for the bank.
  
• High projected loan payoffs in 2025 could counterbalance the company's efforts to achieve loan growth, impacting net revenue and growth forecasts.
  
• The criticized loans, while decreasing, remain a concern, as any increase in non-performing assets (NPAs) or unexpected defaults could negatively affect net margins and credit costs.
  
• The anticipated challenges in remixing the deposit portfolio and reducing reliance on expensive deposits could lead to an increased cost of funds, adversely affecting earnings.
  
• Potential headwinds from macroeconomic factors, such as changes in interest rates by the Federal Reserve, could impact the bank's interest rate risk management efforts, affecting net income and overall financial stability.

Valuation

• The analysts have a consensus price target of $33.3 for Veritex 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 $521.3 million, earnings will come to $152.6 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $26.94, the analyst's price target of $33.3 is 19.1% 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.