First Financial Bankshares (FFIN): Valuation in Focus Following Fed Comments and Regional Bank Rally

Regional banks climbed after the New York Federal Reserve President’s recent comments signaled a stronger chance for an interest rate cut. First Financial Bankshares (FFIN) shares rose as investors anticipated that lower rates could improve funding costs and lending prospects.

See our latest analysis for First Financial Bankshares.

First Financial Bankshares has seen its share price climb 3.4% in the past day, reversing some of the momentum lost over recent months. However, it is still down more than 25% on a total shareholder return basis for the past year. The recent uptick, fueled by optimism around potential interest rate cuts, suggests that there may be growing optimism which could help support a longer-term turnaround.

If you’re watching how quickly sentiment can shift for regional banks, now is a timely moment to broaden your perspective and discover fast growing stocks with high insider ownership

With First Financial Bankshares bouncing back as renewed rate cut hopes emerge, the key question now is whether its recent slump leaves room for upside or if the market is already factoring in a brighter future.

Price-to-Earnings of 18.4x: Is it justified?

First Financial Bankshares trades at a price-to-earnings (P/E) ratio of 18.4x, notably higher than both its peers and the broader US banks sector. With shares last closing at $31.36, this premium suggests the market expects more growth or quality than the norm for similar banks.

The P/E ratio compares a company’s share price to its per-share earnings and offers a quick snapshot of how much investors are willing to pay for future profitability. For a regional bank like First Financial Bankshares, it can spotlight confidence in future earnings growth or signal that the stock may be priced for perfection.

Currently, First Financial Bankshares’ price-to-earnings multiple significantly exceeds both the peer average of 11.9x and the US banks industry average of 11x. In addition, it stands well above the estimated fair P/E ratio of 11.7x. This means the stock’s current valuation is at a level the broader market could adjust toward if growth does not materially accelerate.

Explore the SWS fair ratio for First Financial Bankshares

Result: Price-to-Earnings of 18.4x (OVERVALUED)

However, sustained earnings growth is not guaranteed if loan demand stays muted or if rate cuts do not meaningfully reduce funding costs.

Find out about the key risks to this First Financial Bankshares narrative.

Another View: SWS DCF Model Suggests Undervaluation

Taking a different angle, our DCF model indicates First Financial Bankshares may actually be undervalued. With shares trading around $31.36 and our fair value estimate at $41.82, the DCF approach suggests a considerable discount. Does the market see risks that the model does not, or is there true upside waiting?

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 First Financial Bankshares 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 917 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 First Financial Bankshares Narrative

If you’re keen to dig into the numbers and piece together your own perspective, it only takes a few minutes to chart your own course. Do it your way

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding First Financial Bankshares.

Looking for More Smart Investment Ideas?

There has never been a better time to spot new opportunities. The market favors investors who look beyond the obvious, so do not let your next winning move pass by. Check out these handpicked ways to put your money to work:

• Tap into fast-growing sectors by checking out these 25 AI penny stocks and see which companies are harnessing artificial intelligence for real-world breakthroughs.
• Capture attractive income with these 17 dividend stocks with yields > 3% featuring stocks offering high yields and solid fundamentals for steady returns.
• Seize value by reviewing these 917 undervalued stocks based on cash flows to find companies the market may be overlooking based on strong cash flow potential.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com