If nothing else, Truist (TFC) management has made one thing very clear to investors over the last couple of years – this is not the bank for investors who want management to prioritize capital returns to shareholders. Management at Truist clearly believes they’ve identified attractive avenues for long-term growth, and they’re not at all afraid to direct capital towards realizing that growth. Having already spent over $1B year-to-date on M&A, including the large acquisition of the Constellation insurance brokerage, management recently announced that it was spending $2B to acquire Service Finance Company – a fast-growing specialty POS lender. This deal will be dilutive initially, but over the longer term, it looks like a good (or better) way to leverage growth in home improvement, as well as an opportunity to leverage under-used liquidity.
The SFC acquisition is going to reduce Truist’s near-term returns of capital to shareholders, but it should also improve the long-term growth rate, adding a few percentage points to my fair value, and pushing the total expected return up a bit.
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