Customers Bancorp (CUBI), a member of the Federal Reserve System, provides a range of banking and loan options to retail and business customers. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Market Support
According to Deutsche Bank (DB), The market’s expecting the Federal Reserve to increase interest rates three times in 2022 in an attempt to curb inflation.
Customers Bancorp could be provided with tremendous systemic support from the anticipated interest rate hikes as the firm generates 85% of its revenue from interest-bearing activities.
For investors who aren’t aware, interest-bearing revenues tend to find support from rising rates as the spread on loans increases along with increasing yields.
Comprehensive Earnings Beat
The bank beat its third-quarter earnings estimates, with revenue outperforming by $64.70 million and EPS dominating by $1.34.
Over the past 12-months, Customers Bancorp’s corporate and consumer installment loans went up by 23%, total deposits 57%, and interest income by 23%.
Analysts expect a strong 2022 for the company with a forward diluted EPS growth of 46.36% beckoning. I certainly believe 2021’s strong earnings year can be ascertained if rate hikes are considered a factor.
Valuation
This stock has value in abundance. From a price-to-earnings ratio vantage point, the stock is 26.5% undervalued relative to its 5-year average. In addition, a PEG of 0.04 suggests that earnings growth will be greater than the stock’s P/E multiple by 25x, signaling that deep value may be in play.
Furthermore, the stock’s price-to-sales and price-to-cash flow ratios are undervalued relative to the industry by 19% and 33%, respectively. I see this stock as a classic Warren Buffet deep value play with much intrinsic value at bay.
Wall Street’s Take
Turning to Wall Street, Customers Bancorp has a Strong Buy consensus rating, based on four Buys and one Hold assigned in the past three months. The average Customers Bancorp price target of $70.20 implies 19.6% upside potential.
In particular, Wedbush upgraded the stock last month to a price target of $75 from its initial $61, citing valuation factors as its primary reason for its decision.
Concluding Thoughts
Customers Bancorp is set to benefit from rising interest rates as it generates the majority of its revenue from the debt market. The stock is significantly undervalued and will likely be priced in during 2022.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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