Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 3.1% gain for the banking industry over the past six months. This was a good place to be as the S&P 500 fell by 2.1%.
Nevertheless, investors should tread carefully as many banks are cyclical due to their exposure to credit risk and regulatory changes. Taking that into account, here are three bank stocks we’re swiping left on.
Rocket Companies (RKT)
Market Cap: $42.18 billion
Born in Detroit during the 1980s and evolving into a tech-driven financial powerhouse, Rocket Companies (NYSE: RKT) is a fintech company that provides digital mortgage lending, real estate services, and personal finance solutions through its technology platform.
Why Does RKT Give Us Pause?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 16.5% annually over the last five years
- Anticipated net interest income growth of 3.6% for the next year implies demand will be shaky
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
At $14.95 per share, Rocket Companies trades at 1.7x forward P/B. Dive into our free research report to see why there are better opportunities than RKT.
Truist Financial (TFC)
Market Cap: $58.53 billion
Born from the 2019 merger of BB&T and SunTrust in one of the largest banking combinations since the 2008 financial crisis, Truist Financial (NYSE: TFC) is a bank holding company that offers a wide range of financial services including consumer and commercial banking, wealth management, insurance, and lending solutions.
Why Are We Out on TFC?
- The company has faced growth challenges as its 4.2% annual net interest income increases over the last five years fell short of other banking companies
- Net interest income is projected to tank by 11.4% over the next 12 months as demand evaporates
- Flat earnings per share over the last five years underperformed the sector average
Truist Financial is trading at $47.12 per share, or 0.9x forward P/B. To fully understand why you should be careful with TFC, check out our full research report (it’s free).
Republic Bancorp (RBCAA)
Market Cap: $1.41 billion
With roots dating back to 1974 and operating across multiple states including Kentucky, Indiana, Florida, Ohio, and Tennessee, Republic Bancorp (NASDAQGS:RBCA.A) is a Kentucky-based financial holding company that operates a bank offering traditional banking, mortgage services, and specialized financial products.
Why Does RBCAA Fall Short?
- Annual revenue growth of 6% over the last five years was below our standards for the banking sector
- Loans are facing end-market challenges during this cycle, as seen in its flat net interest income over the last five years
- Estimated tangible book value per share growth of 7.4% for the next 12 months implies profitability will slow from its two-year trend
Republic Bancorp’s stock price of $71.85 implies a valuation ratio of 1.2x forward P/B. If you’re considering RBCAA for your portfolio, see our FREE research report to learn more.
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