Critical Acquisitions And Fee-Based Growth Fuel Positive Future Earnings Prospects

Key Takeaways

• The Macatawa Bank acquisition expands lending, deposits, and market reach, boosting future revenue and efficiency.
  
• Growing market share and fee-based business growth enhance margins and project higher future earnings.
  
• Dependence on non-recurring gains and pressures in mortgage and real estate sectors may impact growth, revenue, and future earnings stability.

Catalysts

Operates as a financial holding company.

• The recent acquisition of Macatawa Bank significantly expanded Wintrust's lending and deposit base, potentially boosting future revenue and earnings through enhanced market penetration and efficiencies from increased scale.
  
• Wintrust's growing market share in the Chicago MSA and surrounding markets suggests continued acquisition of deposits and loans, which can drive future revenue growth.
  
• Improved credit performance and stable credit metrics, such as reduced charge-offs and nonperforming loans, enhance net margins by potentially lowering future provision expenses.
  
• The steady growth in fee-based businesses, particularly treasury management and wealth management, could contribute positively to net margins as these services generally exhibit higher margins than traditional banking activities.
  
• The expectation of stable net interest margins, coupled with projected loan and deposit growth, suggests that net interest income is likely to increase in the coming quarters, driving overall earnings higher.

Wintrust Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wintrust Financial's revenue will grow by 9.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.8% today to 25.7% in 3 years time.
• Analysts expect earnings to reach $759.1 million (and earnings per share of $10.81) by about November 2027, up from $605.2 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 14.3x on those 2027 earnings, down from 14.6x today. This future PE is greater than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 1.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.11%, as per the Simply Wall St company report.

Wintrust Financial Future Earnings Per Share Growth

Risks

• The company's reliance on non-recurring gains, such as security gains and a particular mortgage servicing rights adjustment, might not be sustainable, potentially impacting future net margins and earnings.
  
• Continued pressure on mortgage rates and muted new mortgage activity signal potential challenges in leveraging the company's mortgage business, which could affect revenue and earnings.
  
• Given expected Federal Reserve interest rate cuts, there is uncertainty regarding the impact of changes in the net interest margin, which could lead to potential fluctuations in net interest income, affecting future financial performance.
  
• The company's concentration in commercial real estate, especially offices, poses risks due to ongoing market pressures, including higher borrowing costs and lease rates, potentially impacting asset quality and reserves.
  
• Increased competition in core markets, particularly in regions like Chicago, might challenge Wintrust's ability to maintain its growth trajectory, impacting revenue and market share.

Valuation

• The analysts have a consensus price target of $129.75 for Wintrust Financial 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 2027, revenues will be $3.0 billion, earnings will come to $759.1 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of $132.62, the analyst's price target of $129.75 is 2.2% 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.