CADE: Merger With Huntington Will Drive Expansion Across Southeast Through 2026

Key Takeaways

• Expansion in high-growth Sunbelt markets and successful M&A integration are driving organic growth, geographic diversification, and scalable earnings improvement.
  
• Investments in digital capabilities and treasury management are boosting operational efficiency, customer acquisition, and net margin expansion.
  
• Growing concentration in one region, acquisition risks, cost pressures, and digital competition pose significant threats to Cadence Bank's future earnings and market position.

Catalysts

Provides commercial banking and financial services in the United States.

• The ongoing expansion in high-growth Sunbelt markets, particularly Texas and Georgia, continues to drive robust organic loan and deposit growth, supported by population inflows and business activity; this should underpin sustained revenue and net interest income expansion.
  
• Strategic investments in digital capabilities and treasury management are enhancing customer acquisition and operational efficiencies, contributing to an improved efficiency ratio and supporting higher net margins going forward.
  
• Successful integration of recently acquired banks is broadening Cadence Bank's geographic footprint and client base, accelerating scalable earnings growth and improving return on assets as M&A synergies are realized.
  
• The accelerating pace of small business formation and commercial activity within Cadence's footprint supports a healthy pipeline for commercial lending and cross-selling of fee-based financial services, driving both fee income and loan growth.
  
• The company's ability to attract and grow noninterest-bearing deposits in strong demographic regions lowers overall funding costs and supports net interest margin improvement, enhancing bottom-line earnings potential.

Cadence Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cadence Bank's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.1% today to 32.7% in 3 years time.
• Analysts expect earnings to reach $810.9 million (and earnings per share of $4.22) by about September 2028, up from $525.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, down from 13.2x today. This future PE is about the same as the current PE for the US Banks industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 1.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

Cadence Bank Future Earnings Per Share Growth

Risks

• Cadence Bank's increasing geographic concentration in Texas (now 37% of deposits and an even higher proportion of loans) exposes it to potential regional economic slowdowns, demographic shifts, or adverse events in one primary market, which could limit loan/deposit growth and negatively impact future revenues and earnings.
  
• The company's rapid growth through acquisitions (Industry Bancshares and First Chatham Bank) introduces integration and execution risks, as well as exposure to potential credit quality issues from inherited loan and security portfolios, which may harm efficiency ratios, inflate costs, and raise provisions, impacting net margins and earnings.
  
• Sustained net interest margin pressure was acknowledged following recent security purchases funded with higher-cost borrowings, resulting in a 6-basis point NIM decline (to 3.40%) despite strong loan growth; prolonged low or declining rates, yield curve flattening, or increasing funding competition could further compress margins and reduce net interest income.
  
• Increased legal and data processing expenses, coupled with rising costs associated with growth and acquisitions, demonstrate the structural challenge of controlling noninterest expenses in a scaling regional bank, potentially limiting operating leverage and profit margin improvements over time.
  
• Heavy reliance on traditional banking products in an increasingly digital landscape may expose Cadence Bank to long-term competitive threats from fintechs and large, digitally native banks; insufficient investment in advanced digital platforms could impede fee-based revenue growth and market share retention, constraining longer-term earnings expansion.

Valuation

• The analysts have a consensus price target of $40.2 for Cadence Bank based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $810.9 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 6.9%.
• Given the current share price of $37.27, the analyst price target of $40.2 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.