Umpqua: Building A Long-Term Winner, But The Next Step Is A Doozy

I’m of two minds on Oregon’s Umpqua Bank (NASDAQ:UMPQ). I really like the decisions management is making with respect to its tech investments and strategic positioning for long-term success. On the other hand, I’m concerned about the management team’s inability to reach prior operational targets and the looming threat that a slowdown in mortgage-related revenue will noticeably pressure pre-provision profits over the next couple of years.

It’s been a little more than a year since I’ve written on Umpqua, and the shares have modestly underperformed since then. I do think valuation is quite reasonable here, and that 5%-plus dividend yield is certainly nice, but while I see double-digit long-term annualized appreciation potential, I’m worried about the risk of lower estimate revisions and downgrades from a largely bullish sell-side if in fact those mortgage headwinds materialize over the next 12-18 months.

 

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Umpqua: Building A Long-Term Winner, But The Next Step Is A Doozy