Is Synovus Financial Corp (NYSE:SNV) Expensive For A Reason? A Look At The Intrinsic Value

Valuing SNV, a bank stock, can be daunting since these financial companies have cash flows that are impacted by regulations that are not imposed upon other industries. The tiered capital structure is common for banks to abide by, in order to ensure they maintain a sufficient level of cash for their customers. Emphasizing elements such as book values, as well as the return and cost of equity, is beneficial for gauging SNV’s valuation. Today I’ll determine how to value SNV in a fairly effective and uncomplicated approach. Check out our latest analysis for Synovus Financial

What Is The Excess Return Model?

Two main things that set financial stocks apart from the rest are regulation and asset composition. Strict regulatory environment in United States's finance industry reduces SNV's financial flexibility. Furthermore, banks tend to not hold substantial portions of tangible assets on their books. So the Excess Returns model is suitable for determining the intrinsic value of SNV rather than the traditional discounted cash flow model, which places emphasis on factors such as depreciation and capex.

Deriving SNV's True Value

The central belief for Excess Returns is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. The returns above the cost of equity is known as excess returns:

Excess Return Per Share is used to calculate the terminal value of SNV, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. This is a common component of discounted cash flow models:

These factors are combined to calculate the true value of SNV's stock:

Compared to the current share price of $48.43, SNV is currently priced higher than its intrinsic value. This means SNV isn't an attractive buy right now. Valuation is only one part of your investment analysis for whether to buy or sell SNV. Fundamental factors are key to determining if SNV fits with the rest of your portfolio holdings.

Next Steps:

For banks, there are three key aspects you should look at:

1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like bad loans and customer deposits.

2. Future earnings: What does the market think of SNV going forward? Our analyst growth expectation chart helps visualize SNV’s growth potential over the upcoming years.

3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether SNV is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on SNV here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.