FRC Surges 3.1%. Let's Take a Closer Look at its Valuation.

Regional Banking company FIRST REPUBLIC BANK is standing out today, surging to $132.78 and marking a 3.1% change. In comparison the S&P 500 moved only -0.0%. FRC is -6.43% below its average analyst target price of $141.91, which implies there is more upside for the stock.

As such, the average analyst rates it at buy. Over the last year, FIRST REPUBLIC BANK has underperfomed the S&P 500 by 15.8%, moving -28.4%.

First Republic Bank, together with its subsidiaries, provides private banking, private business banking, and private wealth management services to clients in metropolitan areas in the United States. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.

FIRST REPUBLIC BANK's trailing 12 month P/E ratio is 15.8, based on its trailing EPS of $8.4. The company has a forward P/E ratio of 15.3 according to its forward EPS of $8.69 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.

FRC’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.

When we perform the calculation for FIRST REPUBLIC BANK, we obtain a PEG ratio of 6.49, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.

FIRST REPUBLIC BANK's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 1,204 -198 1,006 162.94
2020-12-31 531 -149 383 -50.35
2019-12-31 939 -168 771 n/a
  • Average free cash flow: $719,721,666.70
  • Average free cash flown growth rate: 56.3 %
  • Coefficient of variability (lower numbers indicating more stability): 43.7 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in FRC have received an annualized dividend yield of 0.8% on their capital.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method.

FIRST REPUBLIC BANK has a P/B ratio of 1.8. This indicates that the market value of the company exceeds its book value by a factor of more than 1, but is still below the average P/B ratio of the Financial Services sector, which stood at 1.95 as of the third quarter of 2022.

With an average P/E ratio, a lower P/B ratio than its sector average, and a steady stream of positive cash flows with an upwards trend, we can conclude that FIRST REPUBLIC BANK is probably fairly valued at current prices. The stock presents strong growth indicators because of its strong net margins with a stable trend, and a PEG ratio of less than 1.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.