BUSINESS
Customers Bancorp, Inc. operates as the bank holding company for Customers Bank that provides financial products and services to individual consumers, and small and middle market businesses. The company offers deposits products, including checking, savings, MMDA, and other deposits accounts. It offers loan products, including commercial mortgage warehouse loans, multi-family and commercial real estate loans, business banking, small business loans, equipment financing, residential mortgage loans, and installment loans.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, CUBI is expected to continue to be a Value Builder.
Customers Bancorp has a current Value Trend Rating of A (Highest Rating).
This rating combines highly consistent signals from two proprietary PTR measures of a stock’s attractiveness. Customers Bancorp has a very high Appreciation Score of 89 and a very high Power Rating of 100, triggering the Highest Value Trend Rating.
Customers Bancorp’s stock is selling well below targeted value. The current stock price of $54.66 compares to targeted value 12 months forward of $159.
Customers Bancorp’s very high appreciation potential results in an appreciation score of 89 (only 11% of the universe has greater appreciation potential.)
Customers Bancorp has a Power Rating of 100. (CUBI’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 0% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; the recent trend in CUBI’s earnings estimates has been extremely favorable; and the Commercial Banks comparison group is in a strong phase currently.
INVESTMENT PROFILE
CUBI’s financial strength is high. Financial strength rating is 78.
Relative to the S&P 500 Composite, Customers Bancorp Inc has neutral Growth/Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that CUBI is normal risk. The only positive is CUBI high historical growth. CUBI’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. CUBI has unusually low market capitalization.
CURRENT SIGNALS
Customers Bancorp’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Customers Bancorp’s current technical position is very strong. The stock price is in a 2.6 month up move. The stock has appreciated 80.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Recent notable negative changes in investment behavior have affected Customers Bancorp Inc (NYSE: CUBI): negative upside/downside volume developed.
The stock is currently rated A.
Customers Bancorp Inc (NYSE: CUBI) stock closed at $54.66 on 3/6/24 after an increase of 1.3%. However, this advance was accompanied by below average trading volume at 67% of normal. The stock has been exceptionally strong relative to the market over the last nine months and has risen 1.9% during the last week.
CASH FLOW
In 2023, Customers Bancorp generated a very significant increase in cash of +$3,390.5 million (+744%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$545.1 million. Non-operating uses consumed -$214.4 million (-39% of EBITDA). Cash taxes consumed -$80.6 million (-15% of EBITDA). Withdrawal of investment from the business totaled +$2,770.4 million (+508% of EBITDA). On a net basis, debt investors supplied +$384.7 million (+71% of EBITDA) while equity investors removed -$14.7 million (-3% of EBITDA).
Customers Bancorp’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Customers Bancorp Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Customers Bancorp was in the third quartile and second quartile. Currently, Customers Bancorp is at median at -39% of EBITDA (-$214.4 million).
Customers Bancorp’s Cash Taxes, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Customers Bancorp Peer Group. In most years, Customers Bancorp was in the third quartile and second quartile. Currently, Customers Bancorp is at the lower quartile at -15% of EBITDA (-$80.6 million).
Customers Bancorp’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Customers Bancorp Peer Group. In most years, Customers Bancorp was in the top quartile and lower quartile. Currently, Customers Bancorp is upper quartile at +508% of EBITDA (+$2,770.4 million).
Customers Bancorp’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Customers Bancorp Peer Group. (Since 2021 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Customers Bancorp was in the top quartile and lower quartile. Currently, Customers Bancorp is below median at +71% of EBITDA (+$384.7 million).
Customers Bancorp’s Equity Investors, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Customers Bancorp Peer Group. In most years, Customers Bancorp was in the third quartile and lower quartile. Currently, Customers Bancorp is slightly below median at -3% of EBITDA (-$14.7 million).
Customers Bancorp’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Customers Bancorp Peer Group. (Since 2021 Change in Cash, %EBITDA has accelerated very sharply.) In most years, Customers Bancorp was in the lower quartile and top quartile. Currently, Customers Bancorp is upper quartile at +622% of EBITDA (+$3,390.5 million).
Customers Bancorp’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Customers Bancorp Peer Group. In most years, Customers Bancorp was in the lower quartile and top quartile. Currently, Customers Bancorp is upper quartile at +267%.
PROFITABILITY
Customers Bancorp’s return on equity has improved very significantly since 2014. The current level of 16.7% is 1.71X the low for the period and is -42.4% from the high.
This very significant improvement was due to very strong positive trend in pretax operating return and small positive trend in non-operating factors.
The productivity of Customers Bancorp’s assets rose over the full period 2014-2023: asset turnover has enjoyed a very strong overall uptrend that accelerated very sharply after the 2020 level.
Partially offsetting this trend, however, pretax margin has experienced a downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
Customers Bancorp’s return on equity is upper quartile (16.7%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (1.6%) reflecting asset turnover that is upper quartile (0.07X) and at median pretax margin (22.9%).
Tax “keep” rate (income tax management) is lower quartile (75.6%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is at the upper quartile (14.21X).
GROWTH RATES
Overall, Customers Bancorp’s growth rate has slowed considerably in recent years.
Customers Bancorp’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.
Annual revenue growth has been 18.7% per year.
Total asset growth has been 11.6% per year. (More recently it has been 4.5%.)
Annual E.P.S. growth has been 18.8% per year. (More recently it has been -10.3%.)
Equity growth has been 11.7% per year.
No consensus growth rate forecast is available for Customers Bancorp.
Relative to the Customers Bancorp Peer Group, Customers Bancorp’s historical growth measures are generally top quartile. Revenue growth (18.7%) has been upper quartile. Total asset growth (11.6%) has been upper quartile. E.P.S. growth (18.8%) has been upper quartile. Equity growth (11.7%) has been substantially above median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Customers Bancorp’s stock price performance has been variable and good. Between May, 2013 and March, 2024, Customers Bancorp’s stock price rose +250%; relative to the market, this was a +12% gain. Significant price moves during the period: 1) March, 2023 – July, 2023: +127%; 2) December, 2021 – March, 2023: -72%; 3) March, 2020 – December, 2021: +498%; and 4) December, 2019 – March, 2020: -54%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 76.3% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of 76.3% is upper quartile relative to Customers Bancorp Inc Peer Group.
Current 5-year total return performance of 22.9% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 22.9% relative to S&P 500 Composite, Customers Bancorp’s total return performance is upper quartile relative to Customers Bancorp Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, CUBI’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 Customers Bancorp Peer Group, CUBI’s overall valuation is low. The highest factor, the price/equity ratio, is at the upper quartile. Ratio of enterprise value/assets is below median. Price/earnings ratio 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 at the lower quartile.
Customers Bancorp has a major value gap compared to the median. For CUBI to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.65X to 3.24X. If CUBI’s ratio of enterprise value/revenue were to rise to 3.24X, its stock price would be higher by $25 to $80.
For CUBI to achieve upper quartile valuation relative to the Customers Bancorp Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.65X to 3.55X. If CUBI’s ratio of enterprise value/revenue were to rise to 3.55X, its stock price would increase by $38 from the current level of $55.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, CUBI is expected to continue to be a Value Builder.
Customers Bancorp’s current Price Target of $182 represents a +233% change from the current price of $54.66.
This very high appreciation potential results in an appreciation score of 89 (only 11% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 89, the high Power Rating of 100 contributes to an Value Trend Rating of A.
Customers Bancorp’s current Price Target is $182 (+14% from the 2023 Target of $159 and +233% from the 03/06/24 price of $54.66). This slight rise in the Target is the result of a +23% increase in the equity base and a -7% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 12.7% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is well below the 2021 peak of 22%.
PTR’s growth forecast is 15.0% — slightly below our recent forecasts. Forecasted growth exhibited a slight, erratic decline between 2015 and 2023. The current forecast is above the 2020 low of 11%.
PTR’s cost of equity forecast is 8.5% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is below the 2021 peak of 13.5%.
At Customers Bancorp’s current price of $54.66, investors are placing a negative value of $-14 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 17.0% per year, and a return on equity of 14.4% versus a cost of equity of 9.6%.
PTR’s 2025 Price Target of $182 is based on these forecasts and reflects an estimated value of existing assets of $66 and a value of future investments of $116.
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