WBS Stock Study (8-1-24)

Posted by Mark on September 23, 2024 at 07:00 | Last modified: August 1, 2024 10:33

I recently did a stock study on Webster Financial Corp. (WBS) with a closing price of $49.62.

M* writes:

     > Webster Financial Corp is a full-service provider of financial
     > services, offering commercial and consumer banking, mortgages,
     > and investment advisory along with trust and wealth management
     > services in Connecticut, New York, Rhode Island, Massachusetts,
     > and Pennsylvania. The company’s segment includes Commercial
     > Banking, HSA Bank, and Consumer Banking. It generates
     > maximum revenue from the Commercial Banking segment.

Over the past 10 years, the medium-size company (bank) has grown sales and EPS at annualized rates of 12.2% and 9.4%, respectively. Lines are somewhat up, straight, and parallel except for sales/EPS declines in ’20 [case could be made to exclude due to COVID-19] and an additional EPS dip in ’22. Five- and 10-year EPS R^2 are 0.22 and 0.66, respectively, and Value Line gives an Earnings Predictability score of 70.

Over the past decade, PTPM trails peer [slightly] and industry averages while ranging from 23.8% in ’20 to 43.6% in ’21 with a last-5-year mean of 40.9%. ROE leads peer averages and trails the industry while ranging from 6.9% in ’20 to 13.2% in ’18 with a last-5-year mean of 10.2%. Debt-to-Capital is higher than peer and industry averages despite falling from 57.1% (’14) to 28.2% with a last-5-year mean of 31.3%.

Value Line gives a B++ grade for Financial Strength. M* reports ROAA last-5-year mean of 1.09%.

With regard to sales growth:

• YF projects YOY 2.2% and 6.8% for ’24 and ’25, respectively (based on 12 analysts).
• Zacks projects YOY 1.7% and 6.6% for ’24 and ’25, respectively (6 analysts).
• Value Line projects 4.9% annualized growth for total assets from ’23-’28.
• CFRA reports ACE of 2.1% YOY and 4.2% per year for ’24 and ’23-’25, respectively (10).
• M* reports ACE 2-year annualized contraction of 0.3%.

My 1.0% forecast is near bottom of the range.

With regard to EPS growth:

• MarketWatch projects 2.2% and 5.3% per year for ’23-’25 and ’23-’26, respectively (based on 16 analysts).
• Nasdaq.com projects 11.9% YOY and 16.7% per year for ’25 and ’24-’26 (8/10/2 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 9.4%.
• YF projects YOY 11.3% contraction and 11.3% growth for ’24 and ’25 (13) and 5-year annualized growth of 19.4%.
• Zacks projects YOY 11.8% contraction and 11.9% growth for ’24 and ’25 (8) and 5-year annualized growth of 12.8%.
• Value Line projects 9.7% annualized growth from ’23-’28.
• CFRA gives ACE growth of 7.7% YOY and 10.2% per year for ’24 and ’23-’25, respectively (14).

My 9.0% forecast is below the long-term-estimate range (mean of four: 12.8%). Initial value is 2024 Q2 EPS of $4.59/share (annualized) rather than ’23 EPS of $4.91.

My Forecast High P/E is 12.0. Over the past decade, high P/E falls from 16.0 (’14) to 11.4 (’23) with a last-5-year mean of 16.1 and a last-5-year-mean average P/E of 12.5. I am near bottom of the range (only ’23 is less).

My Forecast Low P/E is 7.5. Over the past decade, low P/E falls from 12.8 (’14) to 6.3 (’23) with a last-5-year mean of 8.9. I am forecasting near bottom of the range (only ’23 is less).

My Low Stock Price Forecast (LSPF) of $34.40 is default based on initial value given above. This is 30.7% less than previous close and 5.5% less than 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 32.6% in ’23 to 45.4% in ’16 (excluding 68.1% outlier in ’20) with a last-5-year mean 37.4%. I am forecasting below the range at 32.0%.

These inputs land WBS in the HOLD zone with a U/D ratio of 2.6. Total Annualized Return (TAR) is 14.6%.

PAR (using Forecast Average—not High—P/E) of 10.6% is decent for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only eight studies (mine and three other outliers excluded) have been done over the past 90 days and seven are duplicates.

Value Line projects an average annual P/E of 10.0 that is slightly higher than mine (9.8).

Value Line projects high EPS of $9.50/share versus my $7.06.

My LSPF well exceeds the rule-of-thumb [which really isn’t] 20% discount to previous closing price.

MOS is robust because my inputs (and most-recent-quarter initial value) are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 0.84 and 1.1 per Zacks and my projected P/E, respectively: quite reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly low at 0.85.

To be rigorous, I would like to see 5-year mean ROAA > 1.25%. Incidentally [or perhaps less so], Value Line reports return on total assets of 1.38% for 2023 and projects 1.65% in ’27-’29.

Per U/D, WBS is a BUY under $47/share. BI TAR criterion is met < $42/share given a forecast high price ~$85.

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