Over the past six months, First Financial Bancorp has been a great trade, beating the S&P 500 by 12%. Its stock price has climbed to $31.78, representing a healthy 18.4% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in First Financial Bancorp, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is First Financial Bancorp Not Exciting?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons we avoid FFBC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions.
Regrettably, First Financial Bancorp’s revenue grew at a mediocre 9% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector.
2. 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.
First Financial Bancorp’s net interest income has grown at a 8.4% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue. 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. 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.
First Financial Bancorp’s unimpressive 8.7% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
First Financial Bancorp isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 1.1× forward P/B (or $31.78 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of First Financial Bancorp
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