First Interstate BancSystem has had an impressive run over the past six months as its shares have beaten the S&P 500 by 23.1%. The stock now trades at $38.14, marking a 32.2% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in First Interstate BancSystem, 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 Do We Think First Interstate BancSystem Will Underperform?
We’re happy investors have made money, but we don't have much confidence in First Interstate BancSystem. Here are three reasons there are better opportunities than FIBK and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Regrettably, First Interstate BancSystem’s revenue grew at a mediocre 8.6% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
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 First Interstate BancSystem’s net interest income to stall.
3. Efficiency Ratio Expected to Falter
The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.
For the next 12 months, Wall Street expects First Interstate BancSystem to become less profitable as it anticipates an efficiency ratio of 63.9% compared to 58.3% over the past year.
Final Judgment
First Interstate BancSystem doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 1.1× forward P/B (or $38.14 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our top software and edge computing picks.
Stocks We Like More Than First Interstate BancSystem
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