CVB Financial has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 5.6% to $20.78 per share while the index has gained 9.1%.
Is now the time to buy CVB Financial, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think CVB Financial Will Underperform?
We're cautious about CVB Financial. Here are three reasons there are better opportunities than CVBF 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.
Over the last five years, CVB Financial grew its revenue at a sluggish 2.3% compounded annual growth rate. This was below our standards.
2. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
CVB Financial’s net interest income has grown at a 2% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
CVB Financial’s weak 3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
CVB Financial doesn’t pass our quality test. That said, the stock currently trades at 1.1× forward P/B (or $20.78 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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