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This document is a page from a Bank of America Merrill Lynch report dated November 17, 2016, for the Future of Financials Conference. It provides valuation analysis, including price objectives (PO), valuation multiples, and risk assessments for several banks: Signature Bank (SBNY), SunTrust Banks (STI), SVB Financial Group (SIVB), and Synovus Financial Corp (SNV). The analysis uses a three-factor framework (P/E, P/TBV, DCF) to determine price targets and discusses both downside and upside risks for each institution.
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2016 Future of Financials Conference
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Bank of America Merrill Lynch
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["Signature Bank", "SunTrust Banks, Inc.", "SVB Financial Group", "Synovus Financial Corp."]
Key Quotes (3)
"We use an equal-weighted three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $160 PO and assign a 2.1x multiple to 3Q17E TBV, representing a premium to the group..."Source
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"Risks to our price objective are macro risks, such as a slower than expected rate increase."Source
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"Downside risks are a longer than expected low rate environment and a slowdown in the technology sector and related IPO activity."Source
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estimates imply RF would generate ROTEs of 10-11% in 2016-2017E, hence we find RF
fairly valued at 1.3x TBV. Our 13x multiple is in-line with large regional peers. Our DCF
assumes a two-stage cost of capital of 13.6% and 10.5% and a terminal growth rate of
6.5% and Tier 1 common of 8% at termination.
fairly valued at 1.3x TBV. Our 13x multiple is in-line with large regional peers. Our DCF
assumes a two-stage cost of capital of 13.6% and 10.5% and a terminal growth rate of
6.5% and Tier 1 common of 8% at termination.
Downside risks to our PO are a slower-than-expected credit recovery, and the Fed on
hold for a longer period of time.
hold for a longer period of time.
Signature Bank (SBNY)
We use an equal-weighted three-factor valuation framework (P/E, P/TBV, DCF) to arrive
at our $160 PO and assign a 2.1x multiple to 3Q17E TBV, representing a premium to the
group, which we believe is appropriate given a stronger profitability and capital profile,
and above-peer-growth prospects. Our 16.1x multiple on 2017E is higher than peers
given consistent above peer growth. Our DCF assumes a two-stage cost of capital of
10% and a terminal growth rate of 4%.
We use an equal-weighted three-factor valuation framework (P/E, P/TBV, DCF) to arrive
at our $160 PO and assign a 2.1x multiple to 3Q17E TBV, representing a premium to the
group, which we believe is appropriate given a stronger profitability and capital profile,
and above-peer-growth prospects. Our 16.1x multiple on 2017E is higher than peers
given consistent above peer growth. Our DCF assumes a two-stage cost of capital of
10% and a terminal growth rate of 4%.
Risks to our price objective are required provisioning at higher-than-forecast levels,
further deterioration in rental income for commercial properties, and a longer-than-
anticipated low-rate environment.
further deterioration in rental income for commercial properties, and a longer-than-
anticipated low-rate environment.
SunTrust Banks, Inc. (STI)
We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $53 PO,
assigning a 1.7x multiple to 2017E TBV and 14.5x multiple on 17E EPS. Above peer
P/TBV due to their above median profitability, and below peer P/E due to their below
median EPS growth. We have weighted the P/E and P/TBV factors equally at 40%, and
our DCF analysis by 20%.
We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $53 PO,
assigning a 1.7x multiple to 2017E TBV and 14.5x multiple on 17E EPS. Above peer
P/TBV due to their above median profitability, and below peer P/E due to their below
median EPS growth. We have weighted the P/E and P/TBV factors equally at 40%, and
our DCF analysis by 20%.
Our DCF assumes a two-stage cost of capital of 12% and a terminal growth rate of 4%.
Risks to our price objective are macro risks, such as a slower than expected rate
increase. Upside risks are higher-than-expected capital return, a general beta rally for
bank stocks, and faster recognition of "normalized" earnings.
increase. Upside risks are higher-than-expected capital return, a general beta rally for
bank stocks, and faster recognition of "normalized" earnings.
SVB Financial Group (SIVB)
We use a three-factor valuation framework (P/TBV, P/E, DCF) to arrive at our $165 price
objective and assign a 1.8x multiple to our 2Q17E TBV and apply a 17x P/E to 17E EPS.
Our valuation multiples are both in line with high growth peers due to SIVB's high
profitability and EPS growth profile. Our DCF assumes a two-stage cost of capital of
9.5% and a terminal growth rate of 6%.
We use a three-factor valuation framework (P/TBV, P/E, DCF) to arrive at our $165 price
objective and assign a 1.8x multiple to our 2Q17E TBV and apply a 17x P/E to 17E EPS.
Our valuation multiples are both in line with high growth peers due to SIVB's high
profitability and EPS growth profile. Our DCF assumes a two-stage cost of capital of
9.5% and a terminal growth rate of 6%.
Downside risks are a longer than expected low rate environment and a slowdown in the
technology sector and related IPO activity. Upside risks are sooner than expected rate
hike, or better than expected pickup in the tech sector.
technology sector and related IPO activity. Upside risks are sooner than expected rate
hike, or better than expected pickup in the tech sector.
Synovus Financial Corp. (SNV)
We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $40 price
objective and assign a 1.7x multiple to our forward 2Q17 TBV, given peers are currently
trading higher and a discount is warranted given their lower return profile. We place a
15x multiple on 2017E EPS, in line with the historical median for the stock. Our DCF
assumes a two-stage cost of capital of 9%, and a terminal growth rate of 3%.
We use a three-factor valuation framework (P/E, P/TBV, DCF) to arrive at our $40 price
objective and assign a 1.7x multiple to our forward 2Q17 TBV, given peers are currently
trading higher and a discount is warranted given their lower return profile. We place a
15x multiple on 2017E EPS, in line with the historical median for the stock. Our DCF
assumes a two-stage cost of capital of 9%, and a terminal growth rate of 3%.
Downside risks to our price objective are potentially slower-than-expected economic
growth in their footprint or a potential takeout price that is lower than where the stock
is trading today. Upside risks to our price objective are a quicker pick-up in capital return
than we are expecting and SNV being acquired above our price objective.
growth in their footprint or a potential takeout price that is lower than where the stock
is trading today. Upside risks to our price objective are a quicker pick-up in capital return
than we are expecting and SNV being acquired above our price objective.
TCF Financial Corp. (TCB)
72 2016 Future of Financials Conference | 17 November 2016
Bank of America
Merrill Lynch
Merrill Lynch
HOUSE_OVERSIGHT_014386
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