Regional Banking company Synovus Financial is taking Wall Street by surprise today, falling to $37.24 and marking a -4.4% change compared to the S&P 500, which moved -1.2%. SNV is -20.8% below its average analyst target price of $47.02, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Synovus Financial has underperfomed the S&P 500 by -11.7%, moving -23.6%.
Synovus Financial Corp. operates as the bank holding company for Synovus Bank that provides commercial and retail banking products and services. 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.
Synovus Financial's trailing 12 month P/E ratio is 7.6, based on its trailing EPS of $4.91. The company has a forward P/E ratio of 7.2 according to its forward EPS of $5.18 -- 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.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide Synovus Financial's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 1. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Synovus Financial was $768,062,000.00 as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, SNV is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 2937.1% and has on average been $438,278,000.00.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its 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. Synovus financial's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.5, 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.
Since it has a very low P/E ratio, a lower P/B ratio than its sector average, and an irregular stream of positive cash flows with an upwards trend, Synovus Financial is likely undervalued at today's prices. The company has strong growth indicators because of a PEG ratio of less than 1 and strong net margins with a positive growth rate. We hope you enjoyed this overview of SNV's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.