Provident Financial Services (PFS): Assessing Value After Fed Rate Cut Hopes and Upgraded Earnings Forecasts

If you have Provident Financial Services (PFS) on your watchlist, the recent price action should grab your attention. Shares climbed as investors responded to the Federal Reserve’s dovish tone at the latest Jackson Hole symposium, where Chair Jerome Powell suggested that rate cuts could be on the table as inflation continues to cool and jobs data remain strong. Regional banks like Provident tend to benefit when borrowing costs are expected to stabilize or fall, so it is no surprise that optimism spilled into the stock just as analysts boosted earnings estimates.

Looking at the broader picture, Provident Financial Services has posted a 10% total return over the past year and is now up 17% in the past 3 months. This momentum stands out for a regional bank recovering from last year’s rate turbulence. The year-to-date performance shows a steady 6% gain, while earnings and revenue growth have picked up pace. With the banking sector back in favor and market sentiment shifting, this run has made PFS more of a conversation starter for value-focused investors.

The real question for anyone eyeing Provident Financial Services now is this: Are we looking at a potential bargain, or is the market already factoring in all that upside for future growth?

Most Popular Narrative: 9.8% Undervalued

According to community narrative, Provident Financial Services is currently viewed as undervalued by nearly 10%, with the discount rate set at 7.8% in analyst forecasts. This perspective is shaped by the company’s future earnings, profit margin expansion, and projected business shifts.

Sustained commercial loan growth, driven by both new originations and expansion into diverse, higher-margin verticals such as healthcare lending, mortgage warehousing, and SBA loans, positions Provident to benefit from the rising population and business formation in its core markets. This supports ongoing revenue expansion and improved earnings stability.

What’s fueling this bullish outlook? It is a mix of ambitious profit projections, expanding fee income streams, and bold strategic bets on digital transformation. Curious about the numbers and methods powering these forecasts? Find out which assumptions about future earnings and margins are driving the narrative’s idea of value. You might be surprised by what is expected of Provident in the next few years.

Result: Fair Value of $21.92 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, intensifying deposit competition and reliance on local markets could derail this upbeat outlook if funding costs rise or loan growth slows.

Find out about the key risks to this Provident Financial Services narrative.

Another View: Discounted Cash Flow Backs Up Value Case

Looking at it another way, our DCF model also points to undervaluation for Provident Financial Services. This approach digs deep into cash flows rather than market multiples, arriving at a similar conclusion through a different method. Could this reinforce the narrative, or does it still leave room for surprises as market realities shift?

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 Provident Financial Services 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 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 Provident Financial Services Narrative

If you want to reach your own verdict or dig deeper into the numbers, you can build a personalized narrative from scratch in just a few minutes. So why not do it your way?

A great starting point for your Provident Financial Services research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

Looking for More Smart Investment Ideas?

Opportunity never waits, and the right move now could set you apart from the crowd. Don’t stop at just one stock story. Broaden your research with timely trends and hidden gems that others might overlook. Get ahead by exploring these standout opportunities tailored to a range of investor interests:

• Tap into the future of medicine and innovation when you scan healthcare breakthroughs in healthcare AI stocks. These advances are reshaping patient outcomes through AI-driven solutions.
• Strengthen your income portfolio by uncovering companies offering reliable payouts with dividend stocks with yields > 3%. This selection features businesses with dividend yields above 3% and proven track records.
• Ride the next wave of technological disruption and spot fast-moving companies at the forefront of AI penny stocks, where artificial intelligence is fueling breakthrough growth across industries.

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