Repricing CDs And South Florida Acquisition Will Broaden Market Presence

Key Takeaways

• Strategic loan growth and repricing strategies are expected to boost future revenue and improve net interest margins.
  
• The acquisition of American National Bank and strong capital position could enhance market expansion and increase earnings per share.
  
• Economic uncertainties and potential interest rate changes pose risks to United Community Banks' revenue, net interest margins, and asset quality, with operational and acquisition cost pressures potentially affecting profitability.

Catalysts

Operates as the bank holding company for United Community Bank that provides financial products and services to commercial, retail, government, education, energy, health care, and real estate sectors in the United States.

• Growth in loans, particularly in targeted areas like C&I and HELOCs, is expected to drive future revenue increases as these sectors are strategically prioritized for expansion.
  
• The strategic repricing of CDs from higher to lower interest rates is set to improve net interest margins, thereby positively impacting future earnings.
  
• The upcoming acquisition of American National Bank could bolster future revenue through market expansion in South Florida, enhancing United Community Banks' overall footprint.
  
• A robust capital position, including a higher TCE ratio, allows the bank to explore opportunistic buybacks, potentially increasing future earnings per share (EPS) as shares are repurchased at attractive valuations.
  
• The continued focus on maintaining low operating expenses, alongside higher deposit growth funding increased lending activities, will likely lead to improved net margins in the future.

United Community Banks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming United Community Banks's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.9% today to 30.0% in 3 years time.
• Analysts expect earnings to reach $392.5 million (and earnings per share of $3.21) by about April 2028, up from $253.3 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 12.5x on those 2028 earnings, up from 12.4x today. This future PE is greater than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 0.19% 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.

United Community Banks Future Earnings Per Share Growth

Risks

• The uncertainty in the economy due to potential tariff impacts and trade concerns could affect United Community Banks' revenue and earnings if clients face disruptions or increased costs.
  
• Potential rate cuts by the Federal Reserve could adversely affect the bank’s net interest margin in the short term, impacting earnings if they are unable to adjust deposit costs quickly enough.
  
• Small commercial segments, particularly in Navitas and other small businesses, are vulnerable to a recession or increased unemployment, which poses a risk to asset quality and loan losses, affecting net margins.
  
• Noninterest income showed a decrease in the last quarter, and if challenges such as SBA approval delays or reduced secondary market premiums persist, this could further impact revenue generation.
  
• Operating expenses may rise following the closure of the American National Bank acquisition, potentially affecting net margins unless offset by increased revenue or synergies.

Valuation

• The analysts have a consensus price target of $34.0 for United Community Banks 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 $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $392.5 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $26.27, the analyst price target of $34.0 is 22.7% 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.