City Holding’s 22.7% return over the past six months has outpaced the S&P 500 by 9%, and its stock price has climbed to $145.16 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy City Holding, 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 Is City Holding Not Exciting?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in City Holding. Here are three reasons why CHCO doesn’t excite us, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as a cornerstone — its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
City Holding’s net interest income has grown at a 9.8% annualized rate over the last five years, slightly worse than the broader banking industry.
2. Projected Net Interest Income Growth Is Slim
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect City Holding’s net interest income to rise by 3.2%, a slight deceleration versus its 5% annualized growth for the past two years. This projection is slightly below its 5% annualized growth rate for the past two years.
3. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
City Holding’s EPS grew at an unimpressive 8.6% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 5% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
City Holding isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 2.4× forward P/B (or $145.16 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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