Digital Banking And Commercial Hiring Will Strengthen Customer Relations And Diversify Income

Key Takeaways

• Development in digital banking and niche markets will drive revenue growth through improved customer acquisition and diversified income streams.
  
• Hiring and strategic planning in the commercial segment will increase loan growth and support net margin improvement through enhanced financial performance.
  
• Slowing economic growth, credit risk in commercial real estate, and potential interest rate cuts pose challenges to Associated Banc-Corp's financial performance and profitability.

Catalysts

A bank holding company, provides various banking and nonbanking products to individuals and businesses in Wisconsin, Illinois, and Minnesota.

• Continued enhancement of consumer digital banking platforms and product features is expected to drive revenue growth through improved customer acquisition and retention, leading to higher deposit balances.
  
• Hiring additional relationship managers in the commercial segment is anticipated to boost loan growth, which could increase interest income and positively impact earnings as new hires mature and build their client bases.
  
• Introduction of a new specialty deposit and payment solutions vertical focused on niche markets is set to enhance noninterest income and diversify revenue streams, contributing to overall earnings growth.
  
• The strategic plan for organic growth aims to achieve significant increases in commercial loan and deposit volumes, which could lead to improved net margins and financial performance.
  
• Expected stabilization of funding costs and proactive management of asset-liability sensitivity are likely to support net interest margin maintenance or improvement, enhancing future net interest income.

Associated Banc-Corp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Associated Banc-Corp's revenue will grow by 19.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.0% today to 32.4% in 3 years time.
• Analysts expect earnings to reach $563.5 million (and earnings per share of $3.51) by about December 2027, up from $181.5 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 9.5x on those 2027 earnings, down from 22.5x today. This future PE is lower than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.54%, as per the Simply Wall St company report.

Associated Banc-Corp Future Earnings Per Share Growth

Risks

• The U.S. economy is slowing, which could adversely affect Associated Banc-Corp's revenue and overall financial performance.
  
• The bank's loan growth is projected to be at the lower end of its original range, indicating potential challenges in generating revenue through lending.
  
• A shift in criticized loans, especially within the commercial real estate (CRE) segment, suggest increased credit risk that could impact net margins and earnings.
  
• Despite customer satisfaction and deposit growth, potential downward revisions in interest rates could affect net interest income, creating uncertainty in earnings forecasts.
  
• Increased noninterest expenses, though managed, still present a risk to the efficiency ratio and profitability if not offset by higher income or revenue streams.

Valuation

• The analysts have a consensus price target of $27.67 for Associated Banc-Corp 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 $1.7 billion, earnings will come to $563.5 million, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 6.5%.
• Given the current share price of $25.1, the analyst's price target of $27.67 is 9.3% 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.