First Financial Bancorp trades at $26.11 and has moved in lockstep with the market. Its shares have returned 10% over the last six months while the S&P 500 has gained 13.4%.
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Why Is First Financial Bancorp Not Exciting?
We're cautious about First Financial Bancorp. Here are three reasons there are better opportunities than FFBC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Unfortunately, First Financial Bancorp’s 7.6% annualized revenue growth over the last five years was tepid. This was below our standard for the banking sector.
2. 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.
First Financial Bancorp’s net interest income has grown at a 6.4% annualized rate over the last five years, worse than the broader banking industry and slower than its total revenue. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
3. EPS Growth Has Stalled Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
First Financial Bancorp’s flat EPS over the last two years was worse than its 2.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
First Financial Bancorp isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 1× forward P/B (or $26.11 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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