United Community Banks trades at $32.06 and has moved in lockstep with the market. Its shares have returned 9.2% over the last six months while the S&P 500 has gained 13.3%.
Is there a buying opportunity in United Community Banks, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is United Community Banks Not Exciting?
We're sitting this one out for now. Here are three reasons we avoid UCB and a 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.
Unfortunately, United Community Banks’s 9.5% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the banking sector.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
United Community Banks’s EPS grew at a weak 3.5% compounded annual growth rate over the last five years, lower than its 9.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Projected TBVPS Growth Is Slim
The key to tangible book value per share (TBVPS) growth is a bank’s ability to earn consistent returns on its assets that exceed its funding costs and credit losses.
Over the next 12 months, Consensus estimates call for United Community Banks’s TBVPS to grow by 8% to $24.27, paltry growth rate.
Final Judgment
United Community Banks isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1× forward P/B (or $32.06 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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