I saw more upside in Signature Bank (SBNY) when I last wrote about the stock a year ago, but I’m not going to pretend I expected another double. While the shares have pulled back on worries about the recent weakness in cryptocurrency, and perhaps the additional equity raise as well, there are multiple strong growth drivers at this bank as it heads into 2022 – not only is the digital/crypto banking business growing, but so too are businesses like capital call lending, mortgage warehousing, and mortgage servicing, and Signature is one of the most asset-sensitive banks I follow, meaning that it has significant earnings leverage to future rate hikes.
I don’t have an issue with the idea that Signature is a riskier growth story than the typical bank, or even other growth names like First Republic (FRC), East West (EWBC), Pinnacle (PNFP), SVB (SIVB), and it’s certainly true that Signature Bank shares have outperformed all of those names by a wide margin over the last year. Trading at under 13x my 2023 EPS estimate (against an average of around 11.6x for regional banks irrespective of growth) and below my long-term core earnings-based fair value, I still see upside. This is a riskier-than-average business model and I’m a little nervous at how popular the stock is on the sell-side now, but it’s hard to argue the shares are undervalued unless you believe the core lending operations are going to slow markedly.
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