Cullen/Frost: Stretched Valuation, Can't See Fundamental Value

I never expect the market to be completely rational, but occasionally you do find some head-scratching valuations in the banking sector. In the case of names like First Republic (FRC) or SVB Financial (SIVB), high multiples can be explained by an established track record of well-above average organic growth. In the case of Commerce (CBSH), you can argue for a “sleep well at night premium”.

And then there’s Cullen/Frost (CFR). This is one of those situations where I can say I love everything but the valuation, and while that was true a year ago, that didn’t stop the shares from going up another 30% and handily beating regional bank peers. Cullen/Frost doesn’t offer extraordinary growth, but it may well have an M&A “backstop” and I can’t argue with the quality of the bank franchise. Still, with the shares trading at 18x my above-Street ’23 EPS estimate and the valuation implying long-term core earnings growth in the mid-teens, I just can’t see the fundamental value here.

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Cullen/Frost: Stretched Valuation, Can't See Fundamental Value