Rating Update: Stock Rating B-Positive (2/26/24)-Banner Corp (BANR).

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BUSINESS

Banner Corporation operates as the bank holding company for Banner Bank that provide commercial banking and financial products and services to individuals, businesses, and public sector entities in the United States. It accepts various deposit instruments, including interest-bearing and non-interest-bearing checking accounts, money market deposit accounts, regular savings accounts, and certificates of deposit, as well as treasury management services and retirement savings plans.
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INVESTMENT RATING

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BANR is expected to continue to be a Value Builder reflecting capital returns that are forecasted to be above the cost of capital.

Banner has a current Value Trend Rating of B (Positive).
This rating combines consistent signals from two proprietary PTR measures of a stock’s attractiveness. Banner has a slightly positive Power Rating of 65 and a good Appreciation Score of 75, and the Positive Value Trend Rating results.

Banner’s stock is selling well below targeted value. The current stock price of $43.81 compares to targeted value 12 months forward of $86.
Banner’s high appreciation potential results in an appreciation score of 75 (only 25% of the universe has greater appreciation potential.)
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Banner has a Power Rating of 65. (This slightly positive Power Rating indicates that Banner’s chances of achieving favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: the Commercial Banks comparison group is in a strong phase currently; and recent price action has been slightly favorable. An offsetting factor is the trend in Banner’s earnings estimates has been unfavorable in recent months.

INVESTMENT PROFILE

Banner’s financial strength is high. Financial strength rating is 89.
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Relative to the S&P 500 Composite, Banner Corp has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that BANR is lower risk. Relative weaknesses include: low forecasted profitability, and low historical profitability. Banner’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. BANR has unusually low market capitalization.

CURRENT SIGNALS

Banner’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.

Banner’s current technical position is very weak. The stock price is in a 2.1 month down move. The stock has declined 15.2% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. The 200 day moving average has just turned down.

ALERTS

Banner Corp (NASDAQ: BANR). Extremely significant negative changes in investment behavior have recently occurred: the stock’s recent price decline challenged its longer term uptrend, its longer term price trend turned down, and negative upside/downside volume developed.
Limited negative changes in Banner Corp (NASDAQ: BANR) fundamentals have recently occurred. Negative developments: the consensus estimate for December, 2024 decreased significantly, and the consensus estimate for December, 2025 decreased significantly. Positive development: significant quarterly earnings acceleration occurred.
The stock is currently rated B.
Banner Corp (NASDAQ: BANR) stock closed at $43.81 on 2/26/24 after a modest decline of -1.5%. However, this decline was accompanied by unusually low trading volume at 66% of normal. Relative to the market the stock has been strong over the last nine months but has declined -4.7% during the last week.

CASH FLOW

In 2023, Banner experienced a very significant reduction in cash of -$288.6 million (-53%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$317.2 million. Non-operating uses consumed -$90.1 million (-28% of EBITDA). Cash taxes consumed -$43.5 million (-14% of EBITDA). Re-investment in the business amounted to -$686.8 million (-217% of EBITDA). On a net basis, debt investors contributed +$202.0 million (+64% of EBITDA) while equity investors contributed +$12.6 million (+4% of EBITDA).
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Banner’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Banner Peer Group. In most years, Banner was in the top quartile and second quartile. Currently, Banner is at the upper quartile at -28% of EBITDA (-$90.1 million).

Banner’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Banner Peer Group. In most years, Banner was in the third quartile and second quartile. Currently, Banner is slightly below median at -14% of EBITDA (-$43.5 million).

Banner’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Banner Peer Group. In most years, Banner was in the top quartile and lower quartile. Currently, Banner is lower quartile at -217% of EBITDA (-$686.8 million).

Banner’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Banner Peer Group. In most years, Banner was in the third quartile and lower quartile. Currently, Banner is below median at +64% of EBITDA (+$202.0 million).

Banner’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Banner Peer Group. In most years, Banner was in the lower quartile and top quartile. Currently, Banner is at the upper quartile at +4% of EBITDA (+$12.6 million).

Banner’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Banner Peer Group. In most years, Banner was in the top quartile and lower quartile. Currently, Banner is lower quartile at -91% of EBITDA (-$288.6 million).
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Banner’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Banner Peer Group. (Since 2021 Cash, %Revenue has experienced a very sharp decline.) In most years, Banner was in the second quartile and top quartile. Currently, Banner is lower quartile at +34%.

PROFITABILITY

Banner’s return on equity has improved very significantly since 2014. The current level of 11.1% is 1.20X the low for the period and is -6.6% from the high.
Banner’s minor positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of Banner’s assets remained stable over the full period 2014-2023: asset turnover has exhibited little to no overall change although it experienced very sharp improvement from the 2021 level.
Additionally, pretax margin has exhibited a volatile overall uptrend although it experienced a very sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
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Banner’s return on equity is at the upper quartile (11.1%) for the four quarters ended December, 2023.
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Operating performance (pretax return on assets) is above median (1.4%) reflecting asset turnover that is at the lower quartile (0.05X) and substantially above median pretax margin (30.4%).
Tax “keep” rate (income tax management) is at median (80.9%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at median (9.48X).

GROWTH RATES

Overall, Banner’s growth rate has slowed very considerably in recent years.
Banner’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 7.2% per year.

Total asset growth has been 7.2% per year. (More recently it has been -2.2%.)

Annual E.P.S. growth has been 10.6% per year. (More recently it has been -7.1%.)

Equity growth has been 3.9% per year. (More recently it has been 0.5%.)
No consensus growth rate forecast is available for Banner.
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Relative to the Banner Peer Group, Banner’s historical growth measures are erratic. E.P.S. growth (10.6%) has been upper quartile. Total asset growth (7.2%) has been at the upper quartile. Revenue growth (7.2%) has been at the upper quartile. Equity growth (3.9%) has been at the lower quartile.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Banner’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Banner’s stock price rose +34%; relative to the market, this was a -58% loss. Significant price move during the period: 1) September, 2020 – October, 2022: +132%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -25.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -25.3% is lower quartile relative to Banner Corp Peer Group.

Current 5-year total return performance of 0.4% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of 0.4% relative to S&P 500 Composite, Banner’s total return performance is at median relative to Banner Corp Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, BANR’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio, then by the price/earnings ratio. The lowest factor, ratio of enterprise value/assets, is lower quartile.

Relative to Banner Peer Group, BANR’s overall valuation is quite low. The highest factor, the price/equity ratio, is at median. Price/earnings ratio is at the lower quartile. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
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Banner has a major value gap compared to the median. For BANR to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.81X to 4.28X. If BANR’s ratio of enterprise value/revenue were to rise to 4.28X, its stock price would be higher by $31 to $75.
For BANR to achieve upper quartile valuation relative to the Banner Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.81X to 4.71X. If BANR’s ratio of enterprise value/revenue were to rise to 4.71X, its stock price would increase by $40 from the current level of $44.

VALUE TARGETS

BANR is expected to continue to be a Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Banner’s current Price Target of $99 represents a +127% change from the current price of $43.81.
This high appreciation potential results in an appreciation score of 75 (only 25% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 75, the moderately high Power Rating of 65 contributes to an Value Trend Rating of B.
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Banner’s current Price Target is $99 (-8% from the 2023 Target of $108 but +127% from the 02/26/24 price of $43.81). This slight fall in the Target is the result of a +0% increase in the equity base and a -9% decrease in the price/equity multiple. The forecasted decline in cost of equity has a slight positive impact on the price/equity multiple and the forecasted increase in return on equity has a very slight positive impact as well. More than offsetting these Drivers, the forecasted decline in growth has a large negative impact.
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PTR’s return on equity forecast is 10.2% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2015 and 2023. The current forecast is above the 2016 low of 7%.

PTR’s growth forecast is 4.0% — slightly below our recent forecasts. Forecasted growth exhibited a modest, erratic decline between 2016 and 2023. The current forecast is well below the 2017 peak of 10%.

PTR’s cost of equity forecast is 6.6% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2015 low of 4.0%.
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At Banner’s current price of $43.81, investors are placing a negative value of $-31 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 10.2% versus a cost of equity of 6.7%.
PTR’s 2025 Price Target of $99 is based on these forecasts and reflects an estimated value of existing assets of $72 and a value of future investments of $28.

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