A Look at Sumitomo Mitsui Trust (TSE:8309) Valuation Following Earnings Upgrade, Buyback, and Dividend Hike

Sumitomo Mitsui Trust Group (TSE:8309) revealed a significant boost to its full-year earnings forecast, citing gains from reducing strategic shareholdings and consistently low credit costs as key drivers of profitability. The company also introduced a buyback program and raised its dividend outlook, emphasizing a focus on capital efficiency and shareholder value.

See our latest analysis for Sumitomo Mitsui Trust Group.

The flurry of recent announcements has kept Sumitomo Mitsui Trust Group firmly in the spotlight, with news of its expanded buyback program, an increased dividend outlook, and a revision higher for full-year earnings guidance. The stock’s 21.7% total shareholder return over the past year stands out against broader market peers. In addition, the 221% total return over five years points to sustained long-term momentum building behind the bank, even as share price returns have recently leveled out.

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With the company’s earnings outlook rising, buybacks underway, and dividends increased, investors face a pivotal question: Is Sumitomo Mitsui Trust Group undervalued at current levels, or has the market already factored in future growth?

Price-to-Earnings of 10.1x: Is it justified?

Sumitomo Mitsui Trust Group’s shares recently closed at ¥4,267, trading at a price-to-earnings (P/E) multiple of 10.1x. This places the stock below both its sector and peer averages, indicating that the market may be underestimating the company’s earnings power or future potential.

The P/E ratio reflects how much investors are willing to pay for each yen of the company’s earnings. For banks, this multiple often serves as a simple shorthand for what the market expects going forward, factoring in growth, business stability, and risk.

The current multiple suggests investors are cautious, possibly due to anticipated slower profit growth or sector-wide trends. According to SWS’s fair ratio analysis, the justified P/E could be closer to 13.2x. This could provide room for the market to re-rate the stock if its earnings quality and growth prove sustainable.

Compared to the Japanese Banks industry average of 10.3x and a peer group average of 17.4x, Sumitomo Mitsui Trust Group remains attractively valued. With a stronger fair ratio as a possible anchor for future valuation, there is meaningful upside if sentiment shifts in the company’s favor.

Explore the SWS fair ratio for Sumitomo Mitsui Trust Group

Result: Price-to-Earnings of 10.1x (UNDERVALUED)

However, slower annual revenue growth and recent share price volatility could challenge continued momentum. This makes it essential for investors to carefully monitor future developments.

Find out about the key risks to this Sumitomo Mitsui Trust Group narrative.

Another View: What Does the SWS DCF Model Suggest?

Shifting focus from market multiples to the SWS DCF model presents another angle. According to this discounted cash flow approach, Sumitomo Mitsui Trust Group could be substantially undervalued, with a trading price well below our fair value estimate. However, how reliable is this model, and could unforeseen risks change the picture?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Sumitomo Mitsui Trust Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 905 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Sumitomo Mitsui Trust Group Narrative

If you prefer to look at the numbers your own way or question these conclusions, you can easily craft your own view in just a few minutes. Do it your way

A good starting point is our analysis highlighting 5 key rewards investors are optimistic about regarding Sumitomo Mitsui Trust Group.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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