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Is Wintrust Financial Corporation (NASDAQ:WTFC) Worth US$093.96 Based On Intrinsic Value?

One of the most difficult industry to value is banking, given that they adhere to different rules compared to other companies. The tiered capital structure is common for banks to abide by, in order to ensure they maintain a sufficient level of cash for their customers. Looking at data points like book values, in addition to the return and cost of equity, can be appropriate for calculating WTFC’s valuation. Today I will show you how to value WTFC in a relatively effective and uncomplicated method. View out our latest analysis for Wintrust Financial

What Model Should You Use?

Before we begin, remember that financial stocks differ in terms of regulation and balance sheet composition. United States’s financial regulatory environment is relatively strict. In addition, banks usually do not hold substantial portions of physical assets on their balance sheet. So the Excess Returns model is suitable for determining the intrinsic value of WTFC rather than the traditional discounted cash flow model, which places emphasis on factors such as depreciation and capex.

NasdaqGS:WTFC Intrinsic Value June 21st 18
NasdaqGS:WTFC Intrinsic Value June 21st 18

The Calculation

The key belief for this model is that equity value is how much the firm can earn, over and above its cost of equity, given the level of equity it has in the company at the moment. The returns above the cost of equity is known as excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (11.1% – 9.96%) x $58.34 = $0.67

Excess Return Per Share is used to calculate the terminal value of WTFC, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= $0.67 / (9.96% – 2.95%) = $9.54

These factors are combined to calculate the true value of WTFC’s stock:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= $58.34 + $9.54 = $67.89

This results in an intrinsic value of $67.89. Relative to the present share price of US$93.96, WTFC is priced above its true value. Therefore, there’s no benefit to buying WTFC today. Pricing is only one aspect when you’re looking at whether to buy or sell WTFC. Analyzing fundamental factors are equally important when it comes to determining if WTFC has a place in your holdings.

Next Steps:

For banks, there are three key aspects you should look at:

  1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like bad loans and customer deposits.

  2. Future earnings: What does the market think of WTFC going forward? Our analyst growth expectation chart helps visualize WTFC’s growth potential over the upcoming years.

  3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether WTFC is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on WTFC here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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