4 Reasons to Invest in BankUnited (BKU) Stock Right Now
Banking stocks, which had been off the radar in the beginning of the year because of the U.S. regional banking crisis, have come back in the spotlight. The Federal Reserve has signaled an end to the interest rate hikes this cycle and chances of three rate cuts in 2024, which has turned investors bullish on the sector.
Hence, we bring to you one such stock from the sector, BankUnited, Inc. BKU, which looks like a promising pick now. The company is poised for top-line growth, given its solid balance sheet, improving loan balances and efforts to strengthen fee income sources.
Moreover, analysts are optimistic regarding its earnings growth prospects. Over the past 60 days, the Zacks Consensus Estimate for BKU’s current-year earnings has been unchanged. The consensus estimate for 2024 earnings have been revised 1% upward in the same period. BKU currently carries a Zacks Rank #2 (Buy).
Over the past six months, shares of BankUnited have gained 53.1% outperforming 17.9% growth recorded by the industry.
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Let’s delve into the factors that make BKU an attractive investment option now.
Revenue Strength: BankUnited’s revenues witnessed a three-year (2019-2022) compound annual growth rate (CAGR) of 3.2%. The uptrend continued in the first nine months of 2023. Supported by decent growth in loans and its efforts to improve fee income, the top line is expected to keep improving in the near term. Moreover, BankUnited has been changing its deposit mix, which will further aid revenues.
While revenues are projected to decline 1.1% in 2023 amid the tough operating backdrop, the metric will likely rise 1.2% in 2024.
Earnings Growth: Over the last three to five years, BankUnited witnessed earnings growth of 8.2%, higher than the industry average of 4.7%. While the company’s earnings are projected to decline 19.5% this year, the trend will likely reverse after that. In 2024, earnings are expected to grow 3.9%.
Sustainable Capital Distributions: BankUnited has an impressive capital distribution plan. For the first time, the company hiked its quarterly dividend by 10% to 23 cents per share in February 2020 and then by 8.7% to 25 cents in March 2022. It again increased its dividend by 8% in February 2023.
BKU also has a share repurchase program in place. In September 2022, its board of directors authorized the repurchase of up to an additional $150 million worth of shares with no expiration date. This followed a similar authorization announced in May 2022. As of Sep 30, 2023, $20.2 million worth of shares were left to be repurchased.
While management has decided to suspend buybacks until it sees stability in the economy, the firm's earnings strength is expected to help it sustain efficient capital distribution activities in the future.
Favorable Valuation: BankUnited stock looks undervalued when compared with the broader industry. Its current price/sales (P/S) and price/book (P/B) ratios are below the respective industry averages. BKU’s P/S ratio of 1.30 and P/B ratio of 0.97 are lower than the industry average of 2.59 and 1.11, respectively.
Moreover, BKU has a Value Score of A. The Value Style Score condenses all valuation metrics into one actionable score, helping investors steer clear of 'value traps' and identify stocks that are truly trading at a discount. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Other Finance Stocks Worth a Look
A couple of other top-ranked stocks from the finance space are Prospect Capital Corporation PSEC and Capital Southwest Corporation CSWC.
Prospect Capital currently sports a Zacks Rank #1. Its earnings estimates for the current fiscal year have been revised 8.1% upward over the past 60 days. In the past three months, PSEC shares have gained 1.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for Capital Southwest have been revised 2.7% upward for the current fiscal year over the past 60 days. Shares of CSWC have rallied 8% in the past three months. Currently, the company carries a Zacks Rank #2.
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BankUnited, Inc. (BKU) : Free Stock Analysis Report
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