Banks have recovered well from multi-decade valuation lows in 2020, though the next couple of years will likely still see many banks struggling to generate pre-provision profit growth. For Independent Bank Group (IBTX) of Texas (and Colorado), though, I see normalization of the growth story as less about loan growth and spread expansion, and more about a resumption of M&A activity as management looks to build on a valuable toehold in the Texas banking market.
I was lukewarm on Independent Bank back around third quarter earnings, and while these shares have continued to enjoy the market-beating tailwind that has lifted bank stocks in general, the 20% or so move since that last article has lagged the bank’s comp group.
As before, so much of the valuation now depends on the bank’s return to growth-by-M&A. I do see double-digit annualized return potential here, but there are some banks out there with more undervaluation and cleaner growth stories. All in all, I like Independent Bank as a company, but I can’t say it’s a top idea right now.
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