What is the market’s view of Banner’s future operating performance as reflected in the current price of $44? Banner’s common shares will need to reach $73 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $86 Banner stock price by 2029.
Executive Summary
- Key Banner characteristics: very high profitability, above average financial strength, instability, and very low expected growth. Risk Profile is a big positive influence on Banner’s valuation while Growth is a big negative influence.
- Average valuation, lagging shareholder returns. Current valuation levels are average relative to the Banner Peer Group. Recent market returns have substantially underperformed the Banner Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Banner shares should reach a level of $110 by 2029 — an 20.0% per year total shareholder return. A 2029 stock price of $73 would reflect median performance and a price of $86 would be required to reach upper quartile performance.
- Banner’s past growth is slightly below average. Historical growth has been below average relative to the Banner Peer Group and forecasted growth is relatively very low. Asset Growth, Revenue Growth, and Equity Growth have lagged. These factors have negatively affected market perceptions of Banner. Banner’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity.
- Return on Equity is group leading. This factor has strengthened market perceptions of Banner. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Risk Profile has been Banner’s biggest valuation strength. Banner’s risk profile is favorable. Overall variability has been very low with very low revenue variability, above average E.P.S. variability, Financial Strength is only average and earnings’ expectations are very low. The debt/capital ratio has declined.
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