Premium Finance And Robust Deposits Will Secure Future Stability

Key Takeaways

• Strong loan growth, particularly in premium finance, alongside stable net interest margins, enhances revenue potential and earnings stability through 2025.
  
• Significant deposit growth bolsters liquidity, supporting loan expansion and driving net interest income, with a focus on high credit quality and client service.
  
• Economic uncertainty, rising competition, and market pressures could affect loan growth, income, credit quality, and result in volatile earnings for Wintrust Financial.

Catalysts

A financial holding company, provides community-oriented, personal, and commercial banking services in the United States.

• Wintrust Financial expects strong loan growth in the second quarter of 2025, particularly in their premium finance segment, which is anticipated to grow by close to $1 billion, potentially increasing revenue through higher net interest income.
  
• The company maintains a stable net interest margin, with the potential for continued stability or even improvement, which could help sustain or improve net margins and earnings stability through 2025.
  
• Deposits grew significantly in the first quarter, outpacing loan growth, which provides a strong liquidity position to fund further loan growth and drive net interest income.
  
• Management's focus on maintaining high credit quality, with stable charge-offs and nonperforming loans, supports the potential for stable future earnings without significant deterioration in net margins due to credit costs.
  
• Increased recognition for client service and awards, combined with a proactive approach to managing credit risk, drives potential for revenue growth through enhanced customer acquisition and retention, contributing to a more consistent revenue stream.

Wintrust Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wintrust Financial's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.1% today to 26.6% in 3 years time.
• Analysts expect earnings to reach $818.6 million (and earnings per share of $11.66) by about April 2028, up from $668.8 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 15.9x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the US Banks industry at 11.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% 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.

Wintrust Financial Future Earnings Per Share Growth

Risks

• Increased economic uncertainty due to potential tariffs, tax law changes, and funding cuts could impact borrower sentiment and lead to more cautious behavior, potentially affecting loan growth and net interest income.
  
• Rising competition in lending, particularly in areas like leasing and commercial real estate, might pressure loan yields and compress net interest margins over time, impacting earnings.
  
• Exposure to commercial real estate loans, which make up roughly a quarter of the portfolio, might face challenges in economic downturns or if the real estate market faces pressure, impacting credit quality and profitability.
  
• The bank’s increased provision for credit losses, influenced by macroeconomic uncertainty, could reflect potential risks to credit quality and may lead to higher future provisions, affecting net income.
  
• Dependence on market-sensitive income sources such as wealth management and mortgage banking, which have been subject to fluctuations, could lead to volatility in noninterest income if market conditions worsen.

Valuation

• The analysts have a consensus price target of $134.167 for Wintrust Financial 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 $145.0, and the most bearish reporting a price target of just $115.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.1 billion, earnings will come to $818.6 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 6.2%.
• Given the current share price of $113.01, the analyst price target of $134.17 is 15.8% 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.