Umpqua Punished For Short-Term Challenges, But The Long-Term Opportunity Remains Attractive

Although Umpqua (UMPQ) remains one of my favorite mid-cap banks, there's no question that the company's performance since my last write-up has been poor, with the shares down about 11% and trailing its regional peer group by about 15% to 20%. That's definitely not the performance you should expect from a good bank, but I see a disconnect here - even though Umpqua has been hit hard on much weaker than expected spread margins, the pre-provision operating performance hasn't been that bad.

I've reduced my near-term earnings expectations fairly substantially as the year has gone on, but I still believe Umpqua can generate high single-digit long-term core earnings growth, and I think Umpqua will be a longer-term winner in a sector where regional and community banks are going to come under increasing pressure from larger super-regional banks that can leverage a larger base of business to compete more aggressively on price and invest huge sums in IT. I guess the current sentiment makes this a contrarian call, but with a 5% yield and what looks like an unfairly low valuation, this is a name I'm considering adding now.

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Umpqua Punished For Short-Term Challenges, But The Long-Term Opportunity Remains Attractive