City Holding 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 9.2% to $132.58 per share while the index has gained 7.2%.
Is there a buying opportunity in City Holding, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is City Holding Not Exciting?
We’re cautious about City Holding. Here are three reasons you should be careful with CHCO, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
City Holding’s net interest income has grown at a 9.6% annualized rate over the last five years, slightly 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 City Holding’s net interest income to rise by 2.4%, a slight deceleration versus its 4.5% annualized growth for the past two years. This projection is slightly below its 4.5% annualized growth rate for the past two years.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
City Holding’s EPS grew at an unimpressive 6.9% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 3.9% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
City Holding isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 2.2× forward P/B (or $132.58 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
Stocks We Like More Than City Holding
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