Valley National (VLY) Hurt by Rising Costs, Loan Concentration
Valley National Bancorp VLY is expected to witness a persistent rise in operating expenses. This along with concentrated loan portfolio, is a major headwind.
The company's major part of the loan portfolio comprises commercial real estate and residential mortgages. As of Dec 31, 2022, more than 65% of the company's loan portfolio was exposed to these sectors. The housing and real estate sectors have performed reasonably well, but any deterioration in real estate prices could pose a threat to the company's financials.
VLY has continued to record a rise in non-interest expenses over the past several years. The metric has grown at a compound annual growth rate of 13.6% over the past seven years (2016-2022). The rise was primarily due to an increase in equipment expenses and net occupancy. Overall costs are expected to remain high in the near term as the company continues to expand through acquisitions and invest in revenue growth areas.
Analysts seem pessimistic regarding the company’s growth potential. The Zacks Consensus Estimate for VLY’s current-year earnings has been revised 1.4% lower over the last seven days. The company currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of Valley National have fallen 20.4% compared with the industry's 16% decline.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, VLY is well placed to grow organically and inorganically. Revenue growth is likely to continue, driven by strategic acquisitions, higher interest rates and a decent rise in loan demand. Further, given a solid balance sheet position, it remains well-positioned to expand on the back of opportunistic buyouts.
Stocks Worth Considering
A couple of better-ranked stocks from the banking space are CB Financial Services CBFV and Byline Bancorp BY.
The Zacks Consensus Estimate for CB Financials' current-year earnings has remained unchanged in the past 30 days. CBFV's shares have gained 2% over the past three months. Currently, CBFV sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Byline Bancorp currently carries a Zacks Rank #2 (Buy). Its Zacks Consensus Estimate for 2023 has remained unchanged in the past 30 days. Over the past six months, BY’s shares have gained 1.8%.
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Valley National Bancorp (VLY) : Free Stock Analysis Report
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