Community Trust Bancorp’s earnings are expected to remain flat for 2023 due to subdued loan growth and slight margin expansion, with an increase in operating expenses counterbalancing the effect of topline growth. However, the December 2023 target price suggests a moderately-high upside from the current market price, leading to an upgrade in CTBI stock to a buy rating. Furthermore, the loan mix might help the margin continue to expand, and an increase in dividend per share and a payout ratio in line with the last five-year average of 41% are expected. The stock has traded at an average P/TB ratio of 1.24 and an average P/E ratio of around 9.9x in the past, and using these metrics, a target price of $41.1 and $45.8 for the end of 2023 is reached, respectively, implying a 2.0% and 13.7% upside from the March 16 closing price.
Important Details about Community Trust Bancorp Stock: Upgrading To Buy (NASDAQ:CTBI) –
– Community Trust Bancorp’s earnings are expected to remain stagnant in 2023 due to subdued loan growth and increased operating expenses.
– The loan portfolio is well-diversified by loan type but geographically concentrated in Kentucky, with negative outlooks for consumer and residential loans.
– Commercial loans have a more positive outlook due to low unemployment rates, but the trendline for Kentucky’s economic activity has flattened.
– Net interest margin is expected to increase by 10 basis points in 2023.
– Unrealized mark-to-market losses on the securities portfolio pose a risk but are unlikely to result in a significant sell-off.
– The stock is upgraded to a buy rating, with a 2.0% upside from the target price based on P/TB ratio and a 13.7% upside based on P/E ratio.
RiverNorthPhotography Examines the Expected Earnings of Community Trust Bancorp, Inc. (NASDAQ:CTBI) for 2023
Community Trust Bancorp, Inc. (NASDAQ:CTBI) may experience flat earnings this year despite slight margin expansion and subdued loan growth. Factors such as an increase in operating expenses, negative outlook for consumer and residential loans, and uncertainty surrounding the pandemic’s impact on the economy have contributed to this muted outlook. However, it is estimated that the bank will report earnings of $4.61 per share for 2023, with a target price suggesting moderate success.
Loan Portfolio and Growth Outlook
Community Trust Bancorp’s loan portfolio has grown by a decent 2.2% in the last quarter, with full-year growth far higher than in previous years. However, loan growth is expected to fall from its current high levels due to an increase in operating expenses and a negative outlook for both consumer and residential loans, which make up 50% and 25% of the loan portfolio respectively. The consumer confidence index declined in February, which indicates that consumer loans will experience a decrease in demand, and residential loans will suffer due to high mortgage rates and home prices. Commercial loans will experience less of an impact as the unemployment rates in Community Trust Bancorp’s markets, which are primarily located in Kentucky, are low. In 2023, loan growth is expected to slow to 3%.
Margin Expansion Outlook
The bank’s net interest margin has expanded due to the ongoing rate hike cycle, with a moderate rate sensitivity supported by a large balance of adjustable-rate commercial loans. Community Trust Bancorp’s results of a management rate-sensitivity analysis indicated that a 200-basis points hike in interest rates could increase net interest income by 4.6% over twelve months. The net interest margin is anticipated to increase by 10 basis points in 2023.
Income Statement and Dividend Outlook
Community Trust Bancorp’s earnings for 2023 are expected to be $4.61 per share, up by just 1% year-over-year. A slight margin expansion and expected loan growth will support earnings growth this year, but inflation will drive up non-interest expenses, limiting it. However, dividends are anticipated to increase annually in the third quarter by $0.02 per share, suggesting a forward dividend yield of 4.5%.
Unrealized Losses Assessment
There are sizable unrealized losses on the bank’s securities portfolio that may impact the risk level above the usual. While there is a possibility that Community Trust Bancorp may be forced to sell some securities at loss should big depositors withdraw, it is unlikely as the bank’s books are well-diversified, and it does not cater to a niche market such as Silicon Valley or California. It does not have any exposure to crypto assets or digital tokens, as mentioned in SEC filings.
Upgrade to Buy Rating
Based on earnings and dividend estimates, along with historical P/TB and P/E multiples, Community Trust Bancorp is being upgraded to a buy rating. The stock has traded at an average P/TB ratio of 1.24 and an average P/E ratio of around 9.9x in the past. The average P/TB multiple and P/E multiple with a forecast tangible book value per share of $33.2 and the forecasted earnings per share of $4.61 respectively implies a target price of $41.1 and $45.8 by the end of 2023. Both targets imply moderate to high upside potential from the current market price.
Conclusion
RiverNorthPhotography examined the expected earnings of Community Trust Bancorp, Inc. (NASDAQ:CTBI) for 2023 and found factors such as negative outlook for consumer and residential loans, an increase in operating expenses, and uncertainty surrounding the pandemic’s impact on the economy would contribute to flat earnings this year. Loan growth is expected to slow to 3% in 2023, and net interest margin is anticipated to increase by 10 basis points. Despite these challenges, the bank is expected to report earnings of $4.61 per share for 2023 and increase its dividend annually in the third quarter by $0.02 per share, suggesting a forward dividend yield of 4.5%. The sizable unrealized losses on its securities portfolio may impact the risk level higher than usual. However, given its well-diversified books and lack of exposure to crypto assets or digital tokens, it is unlikely to face the same issues as other banks. Based on earnings and dividend estimates, along with historical multiples, Community Trust Bancorp is being upgraded to a buy rating. The average P/TB multiple and P/E multiple with a forecast tangible book value per share of $33.2 and the forecasted earnings per share of $4.61 respectively implies a target price of $41.1 and $45.8 by the end of 2023, with both targets implying moderate to high upside potential from the current market price.