Over the past six months, Webster Financial has been a great trade, beating the S&P 500 by 13%. Its stock price has climbed to $73.09, representing a healthy 19.6% increase. This run-up might have investors contemplating their next move.
Is now the time to buy Webster Financial, 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 Webster Financial Not Exciting?
Despite the momentum, we're cautious about Webster Financial. Here are three reasons there are better opportunities than WBS and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Webster Financial’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.7% over the last two years was well below its five-year trend. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
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 Webster Financial’s net interest income to drop by 8.2%, a decrease from its 10.6% annualized growth for the past two years. This projection is below its 10.6% annualized growth rate for the past two years.
3. EPS Growth Has Stalled Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Webster Financial’s flat EPS over the last two years was worse than its 3.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Webster Financial isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 1.2× forward P/B (or $73.09 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Webster Financial
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