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East West Bancorp (EWBC) Soars 44.9% YTD: Is More Upside Left?

·4 min read

Shares of East West Bancorp, Inc. EWBC have appreciated 44.9% so far this year outperforming the industry’s rally of 37.1%. The impressive year-to-date price performance marks a significant improvement from its last year’s performance. In 2020, the company’s shares witnessed a rise of 4.2%.

Despite a low interest-rate environment and mounting expenses, East West Bancorp’s financial performance continues being driven by robust organic growth strategy, solid liquidity position, and a steady rise in the loans and deposit balances. Apart from this, favorable macroeconomic factors like anticipations of solid economic growth and additional government spending will likely support the company’s performance.

Also, analysts are bullish on the stock, as earnings estimates for this Zacks Rank #1 (Strong Buy) company have been witnessing upward revisions. Over the past 30 days, the Zacks Consensus Estimate for earnings moved up 4.9% and marginally north for 2021 and 2022, respectively.

Let’s take a look at some key factors that are likely to provide further boost to East West Bancorp’s stock.

Revenue Growth: The company’s revenues have witnessed a compound annual growth rate (CAGR) of 7.2% in the last five years (2016-2020), largely driven by improvement in net interest income (NII) and some support from fee income. NII saw a four-year CAGR of 5.1% (ended 2020). Thus, given an improving loan and deposit balance, the company's focus on improving fee income is likely to support top-line growth in the days to come. Notably, revenues are projected to grow at a rate of 7.2% and 4.7% in 2021 and 2022 respectively.

Earnings Strength: The company’s earnings have witnessed growth of 11.1% in the past three-five years, which compares favorably with the industry average of 10.2%. This upward momentum is anticipated to sustain in the near term. In 2021, earnings are projected to be up 41.3%.

Solid Balance Sheet: As of Mar 31, 2021, East West Bancorp had cash and cash equivalents of $4.62 billion, and total debt of $1.11 billion. Further, its times interest earned of 27.2 at the end of the first quarter has been improving over the last several quarters. This implies that the company will likely meet near-term debt obligations even if the economic situation worsens.

Steady Capital Deployments: Aided by a solid capital position, East West Bancorp is committed toward enhancing shareholders’ value on steady capital-deployment activities. In January, the company announced a 20% hike in its quarterly dividend, following hikes in 2015, 2018 and 2019. The company also has a share-repurchase plan in place, under which it has authorized the repurchase of up to $500 million worth of shares.

Favorable Zacks Industry Rank: East West Bancorp is part of that Zacks industry, which currently carries a Zacks Industry Rank #27 (placing it at the top 11% of more than 250 Zacks industries).

The Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Superior Return on Equity: East West Bancorp has a return on equity of 12.15% compared with the industry average of 10.30%. This indicates that the company is more efficient in utilizing shareholder funds.

Other Key Industry Picks

Hancock Whitney Corporation HWC has witnessed an upward earnings estimate revision of 20.3% for 2021 over the past 60 days. This Zacks Rank #1 stock has soared 62.1% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

First Internet Bancorp’s INBK current-year earnings estimate moved up 19.4% in 60 days’ time. Further, the company’s shares have rallied 41.7% over the past six months. At present, it flaunts a Zacks Rank #1.

Northfield Bancorp, Inc.’s NFBK ongoing-year earnings estimate moved 18.6% north in the past 60 days. In addition, the company’s shares have appreciated 42.5% in the past six months. Currently, it sports a Zacks Rank of 1.

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