Synovus Shares Finally Performing As Worst-Case Scenarios Roll Off

Having expressed some frustration in my last article at consistently recommending Synovus (SNV) only to see the shares underperform, the recent run of outperformance is a welcome change. Bank sector valuations are still low, but investors seem willing to do a little “risk on” investing in the sector, particularly where there have been outsized concerns about credit quality, reserves, and capital/dividends. It’s still much too early to declare an “all clear”, particularly as charge-offs usually peak about five to nine quarters after a recession starts, but with the economy recovering and the stimulus efforts seen to date, the worst-case credit scenarios are rolling out of models and valuations.

Synovus still has some things to prove to the Street, but I like management’s blended prioritization of operating efficiency and targeted loan growth across its Southern footprint. Low single-digit core earnings growth can still support a fair value near $30, and while there are some better return prospects elsewhere (including Citizens (CFG), First Horizon (FHN), and Zions (ZION)), the return potential here is still good enough to consider seriously.

 

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Synovus Shares Finally Performing As Worst-Case Scenarios Roll Off