Up 44% over the past year, does Signature Bank have more room to manoeuvre?

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Commercial banking products and services provider Signature Bank (SBNY) saw solid growth in its latest quarter. Its stock has gained 44% in price over the past year. However, given the uncertainties surrounding impending interest rate hikes and the turn of events on the geopolitical front, will the SBNY be able to sustain its momentum? Keep reading for our take.

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New York-based Signature Bank (SBNY) meets the needs of private enterprise clients, their owners and senior executives. It offers a wide variety of corporate and personal banking products and services as well as investment, brokerage, asset management and insurance products and services through its subsidiary, Signature Securities Group Corporation. The stock has gained 44.1% in price over the past year and slightly since the start of the year.

Shares of SBNY have fallen 2.9% over the past five days, however, to close yesterday’s trading session at $325.70. The stock is currently trading above its 200-day moving average but below its 50-day moving average.

The Federal Reserve is expected to raise its benchmark interest rate several times this year to combat rising inflation. Regional banks generate significant income from net interest margins, which has caught the attention of investors amid upcoming interest rate hikes. But while regional banks are known to benefit from rate hikes, the pace at which the Fed tightens monetary policy could be decisive. Too steep a rate hike path could even weigh on bank earnings. On the other hand, the shares of regional banks could suffer if the sell-off which has already weighed on the benchmarks continues to accelerate. “Financial services are generally attractive, but there is a danger in always saying that it will happenwarned CFP Douglas Boneparth, president of Bone Fide Wealth in New York.

Here’s what could shape SBNY’s performance in the near term:

Extended valuation

In terms of forward P/E, SBNY is currently trading at 16.85x, 44.2% higher than the industry average of 11.68x. Additionally, its forward price-to-sales ratio of 7.54 is 130.9% above the industry average of 3.26. Plus, SBNY’s 2.25 striker Price/Book is 91.8% higher than the industry average of 1.17x.

Strong finances

For the fourth quarter, ended Dec. 31, 2021, SBNY’s net income hit a record $271.99 million, a 57.2% year-over-year increase, while its EPS rose 33.1% year over year to $4.34. Its total deposits increased 11.1% to $106.13 billion, including non-interest bearing deposit growth of $9.98 billion. And the company’s total interest income rose 24.1% from its value a year ago to $606.31 million. Additionally, its loans grew by a record $6.28 billion.

Mixed profitability

SBNY’s net profit margin of 47.07% is 55.6% above the industry average of 30.25%. Additionally, its ROE of 12.89% is 0.4% above the industry average of 12.83%, while its ROA of 0.78% is 42.1% below the industry average. industry by 1.34%. And its CAPEX/sales of 1.45% is 12.1% below the industry average of 1.65%.

POWR ratings reflect uncertainty

SBNY has an overall C rating, which translates to Neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

The stock has an F rating for Value, which is consistent with its stretched valuation.

SBNY has a C rating for stability, in sync with its 24-month beta of 1.25.

Among the 57 actions of the North-East Regional Banks group, SBNY is ranked #56.

Beyond what I said above, one can also check out SBNY’s ratings for Quality, Growth, Momentum and Sentiment here.

Discover the best-rated shares of the Caisses Régionales du Nord-Est group here.

Conclusion

With Wall Street predicting up to seven rate hikes this year, as of next month, the short-term scenario looks very volatile. Additionally, escalating geopolitical tensions are injecting more volatility into the markets. Given SBNY’s high valuation and high beta, we think it would be wise to wait for more clarity in the Federal Reserve’s monetary policy pivot before investing in the stock.

How does Signature Bank (SBNY) compare to its peers?

While SBNY has an overall POWR rating of C, one might consider taking a look at its industry peers, Unity Bancorp, Inc. (UNTY), Bankwell Financial Group, Inc. (BWFG), Parke Bancorp, Inc. (PKBK), which have a B (buy) rating.


SBNY shares were unchanged in premarket trading on Friday. Year-to-date, the SBNY has gained 0.87%, compared to a -9.82% rise in the benchmark S&P 500 over the same period.


About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a master’s degree in economics, she gained knowledge in equity research and portfolio management at Finlatics.

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