Loan Production And Fee Momentum Will Drive Future Opportunity

Key Takeaways

• Strong loan production and strategic hiring are poised to boost revenue, market share, and future growth in key sectors.
  
• Proactive balance sheet management and disciplined expense control aim to improve margins and support sustainable earnings growth.
  
• Economic uncertainties and external factors like tariffs and government actions pose risks to Synovus's loan growth, net interest margin, and earnings.

Catalysts

Operates as the bank holding company for Synovus Bank that provides commercial and consumer banking products and services in the United States.

• Synovus is experiencing strong loan production growth, with $1.5 billion funded in the first quarter and positive pipeline projections, particularly in middle market, corporate and investment banking, and specialty lending lines. This supports expectations for improved revenue growth.
  
• The company is seeing a proactive approach in balance sheet management and changes in business mix, with a focus on growth-oriented initiatives which are expected to enhance long-term revenue, earnings, and tangible book value growth.
  
• Fee income momentum is anticipated to be sustained through continued core execution in areas such as treasury and payment solutions and capital markets, which is expected to contribute to revenue growth.
  
• Strategic hiring initiatives, including the addition of 11 new middle-market bankers, are expected to drive future loan growth and increase market share, thereby potentially boosting revenue.
  
• The company's disciplined expense management, demonstrated by a decline in adjusted noninterest expense, is set to enhance net margins and earnings as Synovus balances investment in growth while controlling costs.

Synovus Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Synovus Financial's revenue will grow by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.4% today to 30.3% in 3 years time.
• Analysts expect earnings to reach $825.7 million (and earnings per share of $5.55) by about April 2028, up from $508.4 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 9.4x on those 2028 earnings, down from 11.4x today. This future PE is lower than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to decline by 4.93% 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.

Synovus Financial Future Earnings Per Share Growth

Risks

• The survey revealed that 17% of Synovus commercial clients expect business activity to decline, which could negatively impact future loan growth and hence revenue.
  
• Increasing tariffs and potential federal government agency layoffs are causing concern among borrowers and investors, posing risks to economic growth and affecting Synovus's net interest margin and earnings.
  
• The absence of a Federal Open Market Committee (FOMC) interest rate cut in the first quarter and the projected lag in deposit repricing might exert pressure on Synovus's net interest margin, potentially impacting earnings.
  
• A more adverse economic outlook could affect Synovus's allowance for credit losses, which may rise if credit conditions worsen, affecting net margins and capital levels.
  
• The economic outlook's uncertainty, as highlighted by risk factors such as exposure to increased tariffs and reliance on government contracts, could impact Synovus's loan production and core deposit growth forecasts, thereby affecting revenue.

Valuation

• The analysts have a consensus price target of $54.562 for Synovus 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 $64.0, and the most bearish reporting a price target of just $46.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $825.7 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $41.56, the analyst price target of $54.56 is 23.8% 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.