Over the last six months, Truist Financial’s shares have sunk to $48.44, producing a disappointing 5.5% loss - a stark contrast to the S&P 500’s 6.8% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Truist Financial, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why do we think Truist Financial will underperform?
Even though the stock has become cheaper, we’re cautious about Truist Financial. Here are three reasons why TFC doesn’t excite us, plus one stock we’d rather own.
1. Net interest income points to soft demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Truist Financial’s net interest income has grown at a 2.2% annualized rate over the last five years, much worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
2. Projected net interest income growth shows limited upside
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Truist Financial’s net interest income to stall.
3. EPS trending down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Truist Financial, its EPS and revenue declined by 2.9% and 1.3% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Truist Financial’s low margin of safety could leave its stock price susceptible to large downswings.
Final judgment
Truist Financial falls short of our quality standards. After the recent drawdown, the stock trades at 1× forward P/B (or $48.44 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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