Valley National Bancorp (VLY) Stock May Be Below Fair Value Following Merger Approval

Valley National Bancorp has delivered a strong share price run in recent years, which naturally puts a spotlight on whether that performance is supported by the returns the bank earns on its capital. With fresh regulatory approvals for its next acquisition now in hand, the question for you is how well the current valuation lines up with the profitability of the capital Valley is putting to work.

• Over the past 3 years the stock has returned 83.9%, so a lot now hinges on whether the bank's capital returns can support that kind of re-rating in the long run.
• The newly secured approvals to acquire Providence Financial Corporation may support future profit and capital deployment options, since integrating another institution can affect how efficiently Valley National Bancorp uses its balance sheet.
• If you'd rather focus on earnings, this one's for you. See what Valley National Bancorp's 11.1x P/E says about the price.

The issue now is whether today's price for Valley National Bancorp is justified by the returns it earns on the capital shareholders have funded.

If you want to put Valley National Bancorp's 3 year return of 83.9% in context, start a watchlist from a focused screen of 32 high quality undervalued stocks.

Is Valley National Bancorp a Bargain on Excess Returns?

The Excess Returns model looks at how much profit Valley National Bancorp generates above the return that shareholders require on their equity. For this bank, the framework starts with a Book Value of $13.70 per share and a Stable EPS estimate of $1.61 per share, based on future Return on Equity expectations from 9 analysts. Against a Cost of Equity of $1.21 per share, that points to an Excess Return of $0.40 per share and an Average Return on Equity of 10.72%.

A stable Book Value projection of $15.01 per share, again sourced from those analyst estimates, suggests the institution is modeled as a steady earner rather than a high growth story. Because the planned Providence Financial Corporation acquisition now has key regulatory approvals, investors have a live test case of whether Valley National Bancorp can keep generating returns above its equity cost as it scales. The Excess Returns projections put Valley National Bancorp's estimated intrinsic value substantially above the current share price of $14.34; in other words, the market is not pricing in those modeled excess profits. Find out what Valley National Bancorp could be worth using our Excess Returns estimate.

The Valley National Bancorp Narrative: What Would Justify Today's Price?

Narratives pick up where the Excess Returns work leaves off for Valley National Bancorp and spell out what sort of growth, profitability and earnings path would need to occur for the shares to be worth meaningfully more or less than they are today, on Simply Wall St's Community page. Each scenario links its valuation number to a concrete view of how Valley National Bancorp's growth, margins and risks might evolve, which you can revisit as new information comes through.

One of the top narratives on Valley National Bancorp: 13% undervalued

This Narrative is the analyst consensus Narrative on Simply Wall St, which compiles analysts' consensus price target and revenue and earnings forecasts, not one person's view.

"Management's continued focus on digitalization and operational efficiency has moved from plan to early execution, with about US$15m of annualized AI related savings already identified..."

Discover why this Narrative puts Valley National Bancorp at 13% undervalued.

Before acting on Valley National Bancorp's valuation, consider who is steering the ship

Price, profits and models only tell part of the story, because the people running Valley National Bancorp and the way their rewards are structured can heavily influence what happens next. See who runs Valley National Bancorp and how they are paid.

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