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BankUnited Stock Soars 45% in 6 Months: Should You Buy BKU Now?
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BankUnited Inc.’s (BKU - Free Report) shares have skyrocketed 45% in the past six months and are currently trading just 3.8% below its 52-week high of $39.51 touched on July 31. The stock has outperformed the industry, the S&P 500 Index and its close peers Fifth Third Bancorp (FITB - Free Report) , Huntington Bancshares Incorporated (HBAN - Free Report) and Hilltop Holdings Inc. (HTH - Free Report) .
Six-Month Price Performance Chart
Image Source: Zacks Investment Research
BKU’s sustained emphasis on improving the deposit mix and solid balance sheet will keep aiding its financials in the long run.
Bullish Analyst Sentiments for BKU
Over the past month, the Zacks Consensus Estimate for earnings of $2.87 and $3.24 per share for 2024 and 2025, respectively, has moved marginally upward. These metrics imply growth of 1.4% for this year and 12.9% for 2025.
Estimate Revision Trend
Image Source: Zacks Investment Research
Factors Likely to Drive BankUnited Stock Higher
Fed’s Rate Cuts to Further Aid Financials: Fed Chairman Jerome Powell on Friday said, “The time has come for policy to adjust.” This has set the stage for the first interest rate cut since March 2020. This would further complement BankUnited’s strategy to lower funding costs through improving the deposit mix.
Currently, interest rates are at a 23-year high level of 5.25-5.5%, which had a multifaceted effect on the banks. Though high interest rates have been driving a significant rise in net interest income (NII), the rising funding costs have been exerting pressure on NII and net interest margin (NIM).
BKU’s NII witnessed a four-year CAGR of 3.8% through 2019-2023. NIM declined from 2.47% in 2019 to 2.35% in 2020, due to lower interest rates, and rebounded to 2.38% in 2021 and 2.68% in 2022 amid the high interest rates, with a further dip in 2023 to 2.56% due to rising funding costs.
NII dipped in the first half of 2024 due to rising funding costs, while the NIM improved driven by a higher yield in average earnings assets.
The interest rate cuts will lead to further stabilization of the deposit costs for BKU. Also, as rates come down, demand for wholesale and consumer loans will improve. This, in turn, will lead to growth in NII and NIM.
Management anticipates NII to rise in mid-single-digit to low/high double digits. Further, NIM is expected to reach the high 2% range (higher than 2.72% reached in the second quarter) by the end of 2024 and improve further in 2025.
We project NII to reflect a 2.6% CAGR by 2026, while NIM is anticipated to be 2.73%, 2.91%, and 2.99% in 2024, 2025 and 2026, respectively.
Strategizing Low-Cost Deposits & Decent Loan Demand: Management’s emphasis on the acquisition of low-cost deposits will likely bolster top-line expansion. As of June 30, 2024, non-interest-bearing deposits accounted for 29% of total deposits.
The company anticipates steady growth in the deposits in light of a strengthened pipeline for the same. Further, management aims to improve the deposit mix by gradually increasing the non-interest demand deposit account share to more than 30% over time.
Management expects commercial & industrial and commercial real estate loans to grow in the high single-digit range this year, while residential loans are anticipated to shrink further at a similar pace as in 2023.
Over the years, BKU has witnessed solid organic growth, driven by robust loans and deposit balances. The company’s revenues witnessed a three-year compound annual growth rate (CAGR) of 2.8% (2020-2023). The net loans experienced a 3.8% CAGR over the last five years ended 2023), while deposits recorded a CAGR of 3.1%.
The uptrend continued for net loans, deposits and revenues in the first half of 2024.
We project total revenues to witness a CAGR of 2.7% by 2026.
Strong Balance Sheet Position: As of June 30, 2024, the company had a total debt of $4 billion, while cash and cash equivalents were $433.5 million as of the same date, reflecting a strong liquidity position.
Management has been paying down its debt to reduce the interest burden in the second quarter of 2024, the company reduced its FHLB Advances by roughly 16% on a sequential basis.
Further, at the end of the second quarter of 2024, its times interest earned ratio and total debt/capital were 1.9X and 54.9%, respectively. This indicates that the company is well-managed to deal with its high debt levels in the near term, even if economic turmoil occurs.
Strong Capital Position: BankUnited’s focus on maintaining a strong capital position will support its capital distribution activities. As of June 30, 2024, the company’s capital ratios were well above the regulatory requirements. Common Equity Tier 1 ratio and a total risk-based capital ratio were 11.6% and 13.6%, respectively.
Since 2022, the company has been hiking its dividend payout annually, with the latest hike announced this February to 29 cents per share. The company has increased its dividend four times in the past five years, with a five-year annualized dividend growth of 6.2%.
Similarly, FITB and HTH have increased their dividend four and five times in the past five years, respectively, while HBAN raised its dividend twice in the same time frame.
Currently, BKU has a 43% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
Dividend Yield
Image Source: Zacks Investment Research
BKU also has a share repurchase program in place. As of June 30, 2024, $20.2 million worth of shares remained available under the authorization. Though management is unlikely to pursue buybacks until it sees stability in the economy, the company’s earnings strength is anticipated to help sustain its efficient capital distributions.
Final Thoughts on BKU Stock
BankUnited’s improving deposit mix, decent loan demand, and solid balance sheet are likely to support its financials. Moreover, the Fed’s decision to implement rate cuts will further reinforce the company’s current initiative to mitigate funding cost pressures and improve NIM.
Thus, given the fundamental strength and favorable macroeconomic dynamics, BKU stock remains a lucrative bet for investors now.
Image: Shutterstock
BankUnited Stock Soars 45% in 6 Months: Should You Buy BKU Now?
BankUnited Inc.’s (BKU - Free Report) shares have skyrocketed 45% in the past six months and are currently trading just 3.8% below its 52-week high of $39.51 touched on July 31. The stock has outperformed the industry, the S&P 500 Index and its close peers Fifth Third Bancorp (FITB - Free Report) , Huntington Bancshares Incorporated (HBAN - Free Report) and Hilltop Holdings Inc. (HTH - Free Report) .
Six-Month Price Performance Chart
Image Source: Zacks Investment Research
BKU’s sustained emphasis on improving the deposit mix and solid balance sheet will keep aiding its financials in the long run.
Bullish Analyst Sentiments for BKU
Over the past month, the Zacks Consensus Estimate for earnings of $2.87 and $3.24 per share for 2024 and 2025, respectively, has moved marginally upward. These metrics imply growth of 1.4% for this year and 12.9% for 2025.
Estimate Revision Trend
Image Source: Zacks Investment Research
Factors Likely to Drive BankUnited Stock Higher
Fed’s Rate Cuts to Further Aid Financials: Fed Chairman Jerome Powell on Friday said, “The time has come for policy to adjust.” This has set the stage for the first interest rate cut since March 2020. This would further complement BankUnited’s strategy to lower funding costs through improving the deposit mix.
Currently, interest rates are at a 23-year high level of 5.25-5.5%, which had a multifaceted effect on the banks. Though high interest rates have been driving a significant rise in net interest income (NII), the rising funding costs have been exerting pressure on NII and net interest margin (NIM).
BKU’s NII witnessed a four-year CAGR of 3.8% through 2019-2023. NIM declined from 2.47% in 2019 to 2.35% in 2020, due to lower interest rates, and rebounded to 2.38% in 2021 and 2.68% in 2022 amid the high interest rates, with a further dip in 2023 to 2.56% due to rising funding costs.
NII dipped in the first half of 2024 due to rising funding costs, while the NIM improved driven by a higher yield in average earnings assets.
The interest rate cuts will lead to further stabilization of the deposit costs for BKU. Also, as rates come down, demand for wholesale and consumer loans will improve. This, in turn, will lead to growth in NII and NIM.
Management anticipates NII to rise in mid-single-digit to low/high double digits. Further, NIM is expected to reach the high 2% range (higher than 2.72% reached in the second quarter) by the end of 2024 and improve further in 2025.
We project NII to reflect a 2.6% CAGR by 2026, while NIM is anticipated to be 2.73%, 2.91%, and 2.99% in 2024, 2025 and 2026, respectively.
Strategizing Low-Cost Deposits & Decent Loan Demand: Management’s emphasis on the acquisition of low-cost deposits will likely bolster top-line expansion. As of June 30, 2024, non-interest-bearing deposits accounted for 29% of total deposits.
The company anticipates steady growth in the deposits in light of a strengthened pipeline for the same. Further, management aims to improve the deposit mix by gradually increasing the non-interest demand deposit account share to more than 30% over time.
Management expects commercial & industrial and commercial real estate loans to grow in the high single-digit range this year, while residential loans are anticipated to shrink further at a similar pace as in 2023.
Over the years, BKU has witnessed solid organic growth, driven by robust loans and deposit balances. The company’s revenues witnessed a three-year compound annual growth rate (CAGR) of 2.8% (2020-2023). The net loans experienced a 3.8% CAGR over the last five years ended 2023), while deposits recorded a CAGR of 3.1%.
The uptrend continued for net loans, deposits and revenues in the first half of 2024.
We project total revenues to witness a CAGR of 2.7% by 2026.
Strong Balance Sheet Position: As of June 30, 2024, the company had a total debt of $4 billion, while cash and cash equivalents were $433.5 million as of the same date, reflecting a strong liquidity position.
Management has been paying down its debt to reduce the interest burden in the second quarter of 2024, the company reduced its FHLB Advances by roughly 16% on a sequential basis.
Further, at the end of the second quarter of 2024, its times interest earned ratio and total debt/capital were 1.9X and 54.9%, respectively. This indicates that the company is well-managed to deal with its high debt levels in the near term, even if economic turmoil occurs.
Strong Capital Position: BankUnited’s focus on maintaining a strong capital position will support its capital distribution activities. As of June 30, 2024, the company’s capital ratios were well above the regulatory requirements. Common Equity Tier 1 ratio and a total risk-based capital ratio were 11.6% and 13.6%, respectively.
Since 2022, the company has been hiking its dividend payout annually, with the latest hike announced this February to 29 cents per share. The company has increased its dividend four times in the past five years, with a five-year annualized dividend growth of 6.2%.
Similarly, FITB and HTH have increased their dividend four and five times in the past five years, respectively, while HBAN raised its dividend twice in the same time frame.
Currently, BKU has a 43% dividend payout ratio, which boosts investors’ confidence and enhances shareholder value.
Dividend Yield
Image Source: Zacks Investment Research
BKU also has a share repurchase program in place. As of June 30, 2024, $20.2 million worth of shares remained available under the authorization. Though management is unlikely to pursue buybacks until it sees stability in the economy, the company’s earnings strength is anticipated to help sustain its efficient capital distributions.
Final Thoughts on BKU Stock
BankUnited’s improving deposit mix, decent loan demand, and solid balance sheet are likely to support its financials. Moreover, the Fed’s decision to implement rate cuts will further reinforce the company’s current initiative to mitigate funding cost pressures and improve NIM.
Thus, given the fundamental strength and favorable macroeconomic dynamics, BKU stock remains a lucrative bet for investors now.
BKU currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.