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Is it Wise to Hold SVB Financial (SIVB) Stock Right Now?

Zacks Equity Research

SVB Financial SIVB continues to benefit from solid revenue growth and a healthy balance-sheet position. Nevertheless, pressure on the net interest margin (NIM) due to a low interest-rate environment and escalating expenses are near-term concerns.

SVB Financial’s organic growth looks impressive. The company’s net interest income (NII) has witnessed a CAGR of 19.6% over the last six years (2014-2019). Also, the company witnessed an increase in net loans at a CAGR of 18.2%, while deposits saw a CAGR of 12.5% during the same time frame. Further, an improving non-interest income will keep supporting top-line growth.

As of Mar 31, 2020, SVB Financial had total debt worth $34.9 billion, which increased substantially first-quarter 2020. Despite this, the company’s time-interest-earned and total debt to total capital improved sequentially to 46.3 and 4.62%, respectively, at the end of the quarter. These, along with the company’s consistent earnings growth record, highlight its low credit risk and chances of defaulting on interest and/or debt repayments if the economic situation worsens.

The Zacks Consensus Estimate for earnings has been revised 2.3% and 1.6% upward for 2020 and 2021, respectively, over the past month.

However, SVB Financial’s NIM remains under pressure. The NIM declined to 3.51% in 2019 from the 3.57% recorded in 2018, mainly due to lower interest rates. Despite decent loan demand, its NIM is expected to be hurt in the near term due to the Federal Reserve’s accommodative policy stance.

Moreover, the company has been witnessing a continued rise in operating expenses for the past few years. Over the last six years (2014-2019), non-interest expenses witnessed a CAGR of 18%. As SVB Financial has been investing in upgrading technology, operating expenses are likely to remain elevated.

Also, shares of this Zacks Rank #3 (Hold) company have lost 17% so far this year compared with the industry's decline of 27.7%.

 

Stocks to Consider

Preferred Bank’s PFBC Zacks Consensus Estimate for the current-year earnings moved 2.9% north to $4.29 over the past month. The stock currently sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cathay General Bancorp’s CATY Zacks Consensus Estimate for 2020 earnings moved 1.2% upward to $2.52 over the past month. The stock currently holds a Zacks Rank of 2 (Buy).

First Republic Bank’s FRC Zacks Consensus Estimate for earnings moved up 1.8% to $5.00 in a month’s time for the ongoing year. The stock currently carries a Zacks Rank of 2.

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