Over the past six months, Fulton Financial has been a great trade, beating the S&P 500 by 6.3%. Its stock price has climbed to $20.65, representing a healthy 16.2% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Fulton Financial, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Fulton Financial Not Exciting?
We’re happy investors have made money, but we don't have much confidence in Fulton Financial. Here are three reasons there are better opportunities than FULT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income.
Regrettably, Fulton Financial’s revenue grew at a mediocre 8.7% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
2. Efficiency Ratio Expected to Falter
The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.
For the next 12 months, Wall Street expects Fulton Financial to become less profitable as it anticipates an efficiency ratio of 60.9% compared to 57.6% over the past year.
3. Projected TBVPS Growth Is Slim
Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.
Over the next 12 months, Consensus estimates call for Fulton Financial’s TBVPS to grow by 8.3% to $16.17, paltry growth rate.
Final Judgment
Fulton Financial isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 1.1× forward P/B (or $20.65 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Fulton Financial
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