Texas Capital Bank currently trades at $99.34 per share and has shown little upside over the past six months, posting a small loss of 4.5%. The stock also fell short of the S&P 500’s 11% gain during that period.
Is there a buying opportunity in Texas Capital Bank, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Texas Capital Bank Not Exciting?
We’re passing on Texas Capital Bank for now. Here are three reasons we avoid TCBI, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Texas Capital Bank’s net interest income has grown at a 5.7% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
2. Projected Net Interest Income Growth Is Slim
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 Texas Capital Bank’s net interest income to rise by 2.1%, a deceleration versus its 9.6% annualized growth for the past two years. This projection is below its 9.6% annualized growth rate for the past two years.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.
Over the last five years, Texas Capital Bank has averaged an ROE of 7.3%, uninspiring for a company operating in a sector where the average shakes out around 10%.
Final Judgment
Texas Capital Bank isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 1.2× forward P/B (or $99.34 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
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