East West Bancorp, Inc.’s EWBC bottom line is expected to be hurt by continued rise in expenses. While the company remains well poised for organic growth, supported by rise in loan balances; pressure on net interest margin (NIM) and deteriorating asset quality remain major concerns.
The company has been witnessing downward estimate revisions of late, reflecting that analysts are not optimistic regarding its earnings growth potential. Its Zacks Consensus Estimate for current-year earnings has declined marginally over the past 30 days. Thus, the stock currently carries a Zacks Rank #4 (Sell).
Its price performance also does not seem impressive. The company’s shares have lost 27.4% over the past six months compared with a 14.3% decline of the industry.
Looking at East West Bancorp’s fundamentals, over the last five years (2014-2018), non-interest expenses increased at a CAGR of 7.6% mainly due to rise in compensation and employee benefit costs. Given the increase in headcount and investments in technology to improve non-interest income, its costs are likely to remain elevated, thereby hurting profitability to an extent.
Moreover, margin pressure is another major concern for the company. While its NIM witnessed rise in 2017 and 2018, the same declined in the first half of 2019. In fact, despite continued loan growth, NIM growth is likely to remain muted in the near term due to recent decline in yields and the Federal Reserve’s accommodative stance.
Further, East West Bancorp has considerable exposure to risky loans. High level of commercial real estate loans will likely put it in a tight spot. While the housing sector is rebounding, any deterioration in the real estate prices will weigh on its financials.
Also, the company’s asset quality has been deteriorating over the past few years. Provision for credit losses has seen a CAGR of 52.9% over the past three years (2016-2018). Also, management expects provisions in 2019 to be $80-$90 million, up from $64 million recorded in 2018.
Stocks to Consider
A few better-ranked stocks from the finance space are T. Rowe Price Group, Inc. TROW, TriplePoint Venture Growth BDC Corp. TPVG and Gladstone Investment Corporation GAIN.
T. Rowe Price’s earnings estimates for 2019 have moved 3.9% upward over the past 60 days. The stock has gained 18.7% year to date. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, TriplePoint has witnessed an upward earnings estimate revision of 1.2% for the current year. The stock has gained around 49.8% so far this year. It presently carries a Zacks Rank #2 (Buy).
Gladstone Investment’s Zacks Consensus Estimate for earnings for the current fiscal year has been revised 6.2% upward over the past 60 days. The stock has gained nearly 23.1% so far this year. It currently carries a Zacks Rank #2.
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East West Bancorp, Inc. (EWBC) : Free Stock Analysis Report
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
Gladstone Investment Corporation (GAIN) : Free Stock Analysis Report
TriplePoint Venture Growth BDC Corp. (TPVG) : Free Stock Analysis Report
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