Stellar Bancorp (STEL): Evaluating Valuation Following Third Quarter Results and Share Buybacks

Stellar Bancorp (STEL) reported third quarter earnings that matched most expectations, supported by continued deposit growth and careful management of interest margins. Management expressed optimism, citing solid loan origination activity and addressing recent charge-offs.

See our latest analysis for Stellar Bancorp.

This quarter’s solid report follows a period of steady momentum for Stellar Bancorp. The company’s ongoing share repurchase program, combined with proactive responses to loan charge-offs and deposit strength, has supported improving sentiment. Investors have seen the one-year total shareholder return reach 13.5%, while the five-year total shareholder return stands at an impressive 57.6%. This is a clear sign of confidence building behind the scenes even as cyclical headwinds persist.

If you’re keen to see what else investors are discovering this earnings season, now’s a good time to broaden your search and explore fast growing stocks with high insider ownership

With shares trading close to analyst targets and recent buybacks boosting shareholder returns, investors are left to ask: Is Stellar Bancorp undervalued at these levels, or has the market already priced in its next phase of growth?

Most Popular Narrative: 5.9% Undervalued

With Stellar Bancorp’s fair value narrative at $31.60 compared to a recent close of $29.75, the market appears to be offering shares at a slight discount based on popular forecasts. Investors may want to dig deeper into the drivers of this estimate and its forward-looking assumptions.

The share price likely prices in full and timely realization of merger-related synergies from Allegiance and CBTX, with little room for integration setbacks or cost overhang. These factors could dampen near-term earnings and inflate the expense base if synergies fall short.

Read the complete narrative.

Want to know how ambitious integration targets and sharply higher projected profit multiples are shaping this bullish assessment? There is a striking set of forward-looking estimates working together behind that target. Uncover the financial blueprint that sets this valuation apart.

Result: Fair Value of $31.60 (UNDERVALUED)

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

However, risks remain if economic growth in Texas slows or if integration challenges from recent mergers weigh on profitability and margins more than expected.

Find out about the key risks to this Stellar Bancorp narrative.

Another View: Looking Beyond Analyst Targets

While analyst forecasts paint Stellar Bancorp as slightly undervalued, a look at how the market is pricing its earnings tells a different story. Shares trade at 14.9 times earnings, which is higher than the industry average of 11 and well above a fair ratio of 9.8. This premium could signal that investors are factoring in high hopes for future performance. However, what happens if those expectations are not met?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Stellar Bancorp Narrative

If you prefer charting your own course or want a fresh perspective on Stellar Bancorp’s outlook, you can easily craft your own analysis in just a few minutes, Do it your way

A great starting point for your Stellar Bancorp research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

Looking for More Investment Opportunities?

Plenty of standout stocks remain under the radar, so make your next move count using the Simply Wall Street Screener and seize ideas others might overlook.

• Unlock high potential growth by scanning these 27 AI penny stocks, which feature companies at the forefront of artificial intelligence innovation across global markets.
• Get ahead on stable income with these 18 dividend stocks with yields > 3%, offering yields over 3% for those seeking reliable cash flow and inflation protection.
• Explore under-the-radar value picks with these 839 undervalued stocks based on cash flows, identified by strong upside potential based on robust cash flows and fundamental strength.

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