United Community Banks currently trades at $33.39 per share and has shown little upside over the past six months, posting a small loss of 2.3%. The stock also fell short of the S&P 500’s 12.8% gain during that period.
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Why Is United Community Banks Not Exciting?
We’re passing on United Community Banks for now. Here are three reasons why there are better opportunities than UCB, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income.
Regrettably, United Community Banks’s revenue grew at a mediocre 9.1% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
United Community Banks’s flat EPS over the last five years was below its 9.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. TBVPS Projections Show Stormy Skies Ahead
A bank’s tangible book value per share (TBVPS) increases when it generates higher net interest margins and keeps credit losses low, allowing it to compound shareholder value over time.
Over the next 12 months, Consensus estimates call for United Community Banks’s TBVPS to shrink by 1.6% to $22.86, a sour projection.
Final Judgment
United Community Banks isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 1.1× forward P/B (or $33.39 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.
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