Regional Banking company Western Alliance Bancorporation is taking Wall Street by surprise today, falling to $63.02 and marking a -11.93% change compared to the S&P 500, which moved -0.21%. WAL is -27.71% below its average analyst target price of $87.18, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Western Alliance Bancorporation has underperfomed the S&P 500 by -7.58%, moving -13.86%.
Western Alliance Bancorporation is the banking holding company for Western Alliance Bank offering various banking products and related services primarily in Arizona, California and Nevada.
Western Alliance Bancorporation's trailing 12 month P/E ratio is 9, based on its trailing EPS of $9.7. The company has a forward P/E ratio of according to its forward EPS of $11.4 -- 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 first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.
Western Alliance Bancorporation's PEG ratio of 1.84 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Western Alliance Bancorporation was $2,1 Billion as of its last annual report.
The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $247,327,800.00 and they've been growing at an average rate of -64.58%. WAL's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 2.01% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Western alliance bancorporation's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.296, but is still below the average P/B ratio of the Finance sector, which stood at 1.57 as of the first quarter of 2023.
Since it has a very low P/E ratio, an average P/B ratio, and irregular cash flows with a downwards trend, Western Alliance Bancorporation is likely fairly valued at today's prices. The company has strong growth indicators because of a PEG ratio of less than 1 and strong margins with a stable trend. We hope you enjoyed this overview of WAL's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.