Acquisition Will Expand Regional Footprint In Key US Markets

Key Takeaways

• Strategic acquisitions and robust loan demand in high-growth markets are set to drive revenue and expand Cadence Bank’s regional footprint.
  
• Efficient balance sheet and deposit strategies enhance earnings potential, supported by strong capital positioning for opportunistic growth.
  
• Volatile macroeconomic conditions and competitive pressure may reduce revenue, with stable deposits offset by potential increases in funding costs and weakened loan demand.

Catalysts

Provides commercial banking and financial services in the United States.

• Cadence Bank's acquisition of First Chatham Bank is expected to expand its presence and loan growth in Georgia, accelerating regional market penetration and increasing revenue potential through a broader customer base.
  
• The bank's focus on balance sheet management led to improvements in net interest margin and efficiency ratios, which are anticipated to further bolster earnings as expense management counters revenue volatility.
  
• Solid loan growth driven by robust demand in high-performing markets such as Georgia, Florida, and Texas, coupled with a pipeline of new loans at higher yields, is expected to positively influence revenue and earnings as the macroeconomic environment stabilizes.
  
• The bank's proactive deposit strategy, including the retention of core customer time deposits at lower rates, is likely to enhance net interest income by maintaining a competitive deposit cost structure.
  
• Cadence Bank's maintained high levels of regulatory capital and increased tangible book value provide a flexible capital position, enabling opportunistic growth initiatives that could uplift future earnings and return on equity.

Cadence Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cadence Bank's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.6% today to 28.9% in 3 years time.
• Analysts expect earnings to reach $645.6 million (and earnings per share of $3.32) by about April 2028, up from $530.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 10.5x 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 0.72% 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.

Cadence Bank Future Earnings Per Share Growth

Risks

• The macroeconomic environment is volatile, and Cadence Bank acknowledges this, indicating potential risks that could disrupt financial stability, affecting revenue and net margins.
  
• Competitive pressures on loan yields, particularly in the commercial real estate sector, are noted, which could lead to reduced net interest margins and ultimately lower earnings.
  
• While deposit balances have remained stable, the bank notes that higher-cost time deposits mature over the year. If replacements aren’t favorable, this could increase funding costs, impacting net interest margins.
  
• The uncertainties and anxieties among customers regarding macroeconomic factors suggest potential future loan demand could weaken, affecting loan growth projections and revenue.
  
• Noninterest revenue decreased slightly due to market volatility impacts, highlighting a risk that continued market instability could hamper noninterest income streams, affecting overall earnings.

Valuation

• The analysts have a consensus price target of $34.7 for Cadence Bank 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 $38.0, and the most bearish reporting a price target of just $31.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.2 billion, earnings will come to $645.6 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 6.2%.
• Given the current share price of $30.12, the analyst price target of $34.7 is 13.2% 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.