Investments In Treasury Management And Wealth Services Will Strengthen Future Performance

Key Takeaways

• Strategic expansion in banking and lending, alongside core deposit growth, aims to boost revenue and interest income.
  
• Investments in noninterest revenue and cost control could enhance efficiency, net margins, and shareholder value.
  
• Intense competition and market headwinds may compress margins and increase earnings uncertainty due to declining loan balances and strategic investment costs.

Catalysts

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

• Synovus Financial is expanding strategic verticals such as middle market, corporate and investment banking, and specialty lending, which could drive revenue growth as these areas are anticipated to grow between 10% and 15% in 2025.
  
• The company is focused on generating core deposit growth of 3% to 6% in 2025, supported by new deposit verticals and expansion of relationships, positively impacting net interest margins and interest income.
  
• Synovus is investing in noninterest revenue streams, including treasury management, capital markets, and wealth services, which demonstrate sustainable growth and contribute to revenue and long-term earnings.
  
• Disciplined operating cost control, along with strategic investments in technology and productivity improvements, suggest that improved efficiency ratios could positively affect net margins and earnings.
  
• Synovus' 2025 guidance includes a share repurchase program of $400 million, which can increase EPS as shares outstanding are reduced, providing a potential boost to shareholder value.

Synovus Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Synovus Financial's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.7% today to 29.9% in 3 years time.
• Analysts expect earnings to reach $767.2 million (and earnings per share of $5.77) by about January 2028, up from $439.6 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 13.0x on those 2028 earnings, down from 17.7x 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 decline by 1.95% 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.

Synovus Financial Future Earnings Per Share Growth

Risks

• Loan balances declined by 1% sequentially and 2% year-over-year, impacted by factors such as lower commercial line utilization and significant loan payoffs, which may put pressure on future revenue and earnings if such trends persist.
  
• The lending environment was negatively impacted by market headwinds, including lower utilization of commercial lines and elevated levels of loan payoffs, leading to potential earnings uncertainty.
  
• Intense competition is anticipated, which might lead to margin compression as banks lower lending rates to attract borrowers, potentially affecting net interest margins and profitability.
  
• Continued strategic investments and hiring initiatives may increase noninterest expenses, which could pressure net income if revenue growth does not keep pace.
  
• The commercial real estate (CRE) loan portfolio faces risks from higher interest rates or adverse market conditions, potentially increasing nonperforming loans and impacting net margins due to higher allowances for credit losses.

Valuation

• The analysts have a consensus price target of $63.12 for Synovus 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 $2.6 billion, earnings will come to $767.2 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 5.9%.
• Given the current share price of $55.01, the analyst's price target of $63.12 is 12.8% 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.