Banking company Western Alliance Bancorporation is standing out today, surging to $45.27 and marking a 5.1% change. In comparison the S&P 500 moved only 0.0%. WAL is -14.63% below its average analyst target price of $53.03, 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 6033.0%, moving -4530.1%.
Western Alliance Bancorporation operates as the bank holding company for Western Alliance Bank that provides various banking products and related services primarily in Arizona, California, and Nevada. 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.
Western Alliance Bancorporation's trailing 12 month P/E ratio is 5.2, based on its trailing EPS of $8.76. The company has a forward P/E ratio of 5.5 according to its forward EPS of $8.17 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.
When we divide Western Alliance Bancorporation's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of -0.41. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing WAL's growth potential .
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Western Alliance Bancorporation's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 2,245,300 | -141,000 | 2,104,300 | 177.27 |
| 2021-12-31 | -2,654,000 | -69,400 | -2,723,400 | -523.28 |
| 2020-12-31 | 670,200 | -26,800 | 643,400 | -5.75 |
| 2019-12-31 | 717,772 | -35,148 | 682,624 | n/a |
- Average free cash flow: $176.73 Million
- Average free cash flown growth rate: 32.5 %
- Coefficient of variability (the lower the better): 1159.6 %
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 WAL have received an annualized dividend yield of 3.3% on their capital.
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 of 0.94 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.57 as of the first quarter of 2023.
Western Alliance Bancorporation is by most measures undervalued because it has a very low P/E ratio, an exceptionally low P/B ratio, and irregular cash flows with an upwards trend. The stock has strong growth indicators because it has a a PEG ratio of less than 1 and strong net margins with a stable trend. We hope you enjoyed this overview of WAL's fundamentals.
