Northwest Bancshares currently trades at $12.43 per share and has shown little upside over the past six months, posting a small loss of 3.3%. The stock also fell short of the S&P 500’s 5.7% gain during that period.
Is now the time to buy Northwest Bancshares, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Northwest Bancshares Will Underperform?
We're cautious about Northwest Bancshares. Here are three reasons why NWBI doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Unfortunately, Northwest Bancshares’s 4.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the banking sector.
2. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Northwest Bancshares’s net interest income has grown at a 6% annualized rate over the last five years, worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
3. Substandard TBVPS Growth Indicates Limited Asset Expansion
We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.
Disappointingly for investors, Northwest Bancshares’s TBVPS grew at a sluggish 2.5% annual clip over the last two years.
Final Judgment
Northwest Bancshares falls short of our quality standards. With its shares lagging the market recently, the stock trades at 0.9× forward P/B (or $12.43 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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