Expanding Into Asheville And Tuscaloosa And Integrating Top Bankers Aims To Drive Future Profitability

Key Takeaways

• Expanding into new markets and integrating high-performing bankers is expected to drive significant growth and improve loan originations and net interest income.
  
• Strategic M&A activities and balance sheet optimization could enhance profitability, aligning growth with capital investments to improve future earnings.
  
• Economic and competitive pressures may affect FB Financial's profitability, with growth strategies and market expansions facing potential execution and integration challenges.

Catalysts

Operates as a bank holding company for FirstBank that provides a suite of commercial and consumer banking services to businesses, professionals, and individuals.

• FB Financial's focus on expanding its geographical footprint with new market entries, such as into Asheville, North Carolina, and Tuscaloosa, Alabama, is expected to drive significant organic growth, impacting future revenue positively.
  
• The company's strategy to hire and integrate high-performing bankers is anticipated to bolster its core C&I business, which is likely to increase loan originations and improve net interest income.
  
• Plans to capitalize on an expected more favorable M&A environment could strategically augment FB Financial’s growth and profitability by acquiring culturally and geographically aligned banks, potentially boosting earnings.
  
• FB Financial's continued emphasis on optimizing the balance sheet and growing core deposit balances efficiently could enhance net interest margins and bolster long-term profitability.
  
• The leadership’s focus on aligning capital investments with revenue opportunities, such as expanding banking teams and business units, is expected to drive increased profitability and efficiency, potentially improving future earnings.

FB Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming FB Financial's revenue will grow by 16.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.2% today to 33.9% in 3 years time.
• Analysts expect earnings to reach $234.7 million (and earnings per share of $4.99) by about January 2028, up from $116.0 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 14.1x on those 2028 earnings, down from 21.2x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

FB Financial Future Earnings Per Share Growth

Risks

• Economic factors such as changing regulatory environments and potential interest rate fluctuations could affect the bank's cost of funds and net interest margins, impacting its overall earnings and profitability.
  
• The competitive loan pricing environment and conservative discipline in managing commercial real estate exposure may limit the expansion of their loan portfolio, potentially constraining revenue growth.
  
• Leadership's growth strategy, which involves significant expansion into new markets like Asheville, may face execution risks and integration challenges that could impact efficiency, net margins, and overall profitability.
  
• High susceptibility to external economic conditions, such as a potential downturn in the real estate market, may lead to increased credit risk, affecting the bank's provision for loan losses and net income.
  
• Continuous reliance on new hires for growth, although positive, carries the risk of increased operational expenses if the expected returns in terms of revenue and enhanced customer experience do not materialize as planned.

Valuation

• The analysts have a consensus price target of $60.4 for FB 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 2028, revenues will be $693.2 million, earnings will come to $234.7 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 5.9%.
• Given the current share price of $52.77, the analyst's price target of $60.4 is 12.6% 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.