Faster Integration And Core Conversion Will Unlock Maryland Opportunities

Key Takeaways

• Acquisition of Sandy Spring Bancorp aids revenue growth and cost synergies via market expansion and integration efficiencies, boosting earnings.
  
• Regional economic strengths and accelerated systems conversion could drive revenue growth, profitability, and enhance net interest margins.
  
• Economic uncertainty and market volatility pose risks to loan growth, interest margins, and earnings, with increased loan loss provisions impacting financial health.

Catalysts

Operates as the bank holding company for Atlantic Union Bank that provides banking and related financial products and services to consumers and businesses in the United States.

• The acquisition of Sandy Spring Bancorp, which closed earlier than expected, offers potential for revenue growth and cost synergies, particularly through market expansion and an accelerated integration process. This is expected to boost earnings through increased efficiencies.
  
• The anticipated sale of $2 billion in commercial real estate loans may improve the balance sheet by reducing risk and freeing up capacity for new, potentially higher-yielding loans, potentially enhancing net interest margins and earnings.
  
• Regional economic strengths, such as the affluent and educated populations in Maryland and the diversification and resilience of the Greater Washington area as a hub for technology and defense, could drive revenue growth and profitability.
  
• The accelerated core systems conversion timeline could lead to faster realization of cost savings, enhancing net margins and earnings.
  
• With the mark-to-market adjustments on a significant portion of the loan portfolio, the company may experience an accretion of interest rate marks increasing cash earnings, which should meaningfully support GAAP earnings over time.

Atlantic Union Bankshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atlantic Union Bankshares's revenue will grow by 35.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.7% today to 40.3% in 3 years time.
• Analysts expect earnings to reach $799.8 million (and earnings per share of $4.76) by about April 2028, up from $197.3 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 7.9x on those 2028 earnings, down from 20.1x 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 0.47% 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.

Atlantic Union Bankshares Future Earnings Per Share Growth

Risks

• The pro forma and forward-looking financial data are not indicative of future results and are subject to risks and uncertainties, which could affect the predictability of revenue and earnings.
  
• The economic outlook is uncertain, with potential risks of a national recession and volatility in financial markets, impacting loan growth and net interest margins.
  
• The loan loss provision was increased due to economic uncertainty and elevated recession risk, which could negatively affect net earnings if these risks materialize.
  
• Noninterest income decreased, driven by a decline in loan-related fees and operating income, potentially impacting net income if these trends continue.
  
• The market turmoil and potential steeper discounts in the commercial real estate loan sale could affect the realized proceeds and thus the financial health reflected in future earnings.

Valuation

• The analysts have a consensus price target of $37.833 for Atlantic Union Bankshares 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 $46.0, and the most bearish reporting a price target of just $32.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $799.8 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $27.84, the analyst price target of $37.83 is 26.4% 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.