When investors think of regional bank stocks, large, famous names like Truist or Fifth Third, may first come to mind. However, these aren't the names in the space hitting new highs.
Assessing the long-term stock price performance of regional bank stocks, here are the three largest regional banks currently near a new high: Citizens Financial Group (CFG -0.03%), East West Bancorp (EWBC +0.50%), and Wintrust Financial Corporation (WTFC +0.12%).
Let's examine them and see if bullish momentum can last. For example, recent developments like the pending federal reclassification of marijuana may have more of a direct impact on marijuana stocks, but if this change leads to reforms in marijuana banking law, it will prove to be a boon for the regional banking sector as well.
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1. Strong fundamentals point to continued outperformance for Citizens Financial Group
Citizens Financial Group offers a range of customer and commercial banking services. Based in Rhode Island, Citizens operates branches throughout the Eastern and Midwestern United States. Shares currently trade at a forward price-to-earnings ratio (forward P/E) of about 12.
NYSE: CFG
Key Data Points
This is in line with other regional banks, most of which trade at forward P/Es in the low teens range. Thanks to factors such as an increasing net interest margin, Wall Street anticipates further earnings growth in the coming year.
Sell-side analyst estimates call for earnings growth of over 31% next year, from $3.83 to $5.03 per share. Assuming current trends continue, Citizens could experience a price surge in line with this earnings growth, or even valuation expansion.
2. East West Bancorp has been growing its dividend
Based in Pasadena, California, East West Bancorp started off as a bank focused on Southern California's Chinese-American community. Over time, it has become a major regional bank, with branches across the West Coast of the United States, as well as in China, Hong Kong, and Singapore.
NASDAQ: EWBC
Key Data Points
Analysts expect East West's earnings to rise 6.7% next year. East West trades for 13.6 times forward earnings estimates. This is on the higher end of the valuation range for regional banks, and it's admittedly questionable whether modest earnings growth could continue to support this valuation.
Then again, East West has also become a dividend growth story in recent years. Shares have a forward dividend yield of about 2%, and dividends have increased by an average annual rate of 17% over the past five years. Further strong dividend growth may enable the stock to sustain its high multiple, and continue to rise in price.
3. Wintrust's dividend growth could spark a further rally
Rosemont, Illinois-based Wintrust is another regional bank that has been nearing historical highs lately. Wintrust operates throughout the Greater Chicago area, as well as in Southwest Florida. Unlike Citizens, with its high projected earnings growth, and East West, with its valuation expansion potential, Wintrust faces the prospect of far more modest future growth.
NASDAQ: WTFC
Key Data Points
Wintrust trades at a reasonable 12 times forward earnings estimates. However, estimates call for earnings growth of only 4.3% next year. Even so, there's another factor at play that may help drive Wintrust to new all-time highs: its aggressive dividend growth policy.
Wintrust has a forward yield of only 1.4%, but the quarterly dividend has grown by an average of 12.3% annually over the past five years. A low payout ratio of only 17.4% suggests Wintrust has further room to grow its cash payouts. This could push the stock price up.
