First Financial starts 2023 as most valued bank stock by price-to-estimated EPS

Abilene, Texas-based First Financial Bankshares Inc. continued its reign as the most valued U.S. bank stock by price-to-estimated 2023 earnings as of Jan. 13, according to an S&P Global Market Intelligence analysis.

S&P Global Market Intelligence analyzed U.S. banks that appear to be valued more as a multiple of earnings than tangible book value. To be included in this analysis, a company needs to have at least four analyst EPS estimates available for calendar year 2023. In addition, the bottom 20% of banks by price to tangible book were excluded.

Top banks

First Financial traded at 20.8x its estimated 2023 EPS, compared to the industry median of 9.5x for the 121 banks that were included in this analysis.

Earlier in the month, First Financial named Michelle Hickox CFO, replacing James Gordon. Investors were hesitant about the news, but Hovde Group analyst Brett Rabatin, who has a $38.50 price target and a 2023 EPS estimate of $1.66 for the company, welcomed the change due to Hickox's experience and significant M&A experience.

The largest bank by market capitalization in the top 20 list, San Francisco-based First Republic Bank, claimed the second spot as its shares traded at 19.9x.

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On Jan. 9, Jefferies analyst Ken Usdin upgraded First Republic Bank to "buy" from "hold" and raised the price target to $147 from $121 and 2023 EPS estimate to $6.75 from $6.55.

First Republic is well positioned ahead of a likely recession considering its safe, liability-sensitive balance sheet, Usdin said. First Republic is also the only bank in Usdin's coverage universe where he feels comfortable modeling zero loss rates.

Dallas-based Triumph Financial Inc. ranked third on the most richly valued bank stocks list, trading at 19.8x. In December 2022, the company's stock was the second worst-performing bank stock based on its month-to-date return.

Warsaw, Ind.-based Lakeland Financial Corp. was fourth in this analysis, trading at 17.6x, followed by Kansas City, Mo.-based Commerce Bancshares Inc., trading at 17.3x.

Negative returns

First Financial shares returned negative 32.5% over the last 12 months, compared to the S&P U.S. BMI Banks index's negative 19.1% return and the S&P 500's negative 12.8% return.

Of the 20 most valued banks by price-to-estimated 2023 earnings, 17 posted positive returns year-to-date. Wilmington, N.C.-based Live Oak Bancshares Inc.'s stock had the highest return at 6.4%, while Louisville, Ky.-based Stock Yards Bancorp Inc.'s stock had the lowest at negative 4.1%.