Over the past six months, Synovus Financial’s shares (currently trading at $49.70) have posted a disappointing 10% loss, well below the S&P 500’s 5% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Synovus Financial, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Synovus Financial Not Exciting?
Even though the stock has become cheaper, we don't have much confidence in Synovus Financial. Here are three reasons why there are better opportunities than SNV and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Synovus Financial’s net interest income has grown at a 4% annualized rate over the last five years, worse than the broader banking industry.
2. Projected Net Interest Income Growth Is Slim
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Synovus Financial’s net interest income to rise by 5.6%.
3. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) serves as a critical gauge of a bank's fundamental profitability by showing the spread between interest income and interest expenses. It's essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, we can see that Synovus Financial’s net interest margin averaged a subpar 3.2%, indicating the company has weak loan book economics.
Final Judgment
Synovus Financial isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 1.3× forward P/B (or $49.70 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
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