BankUnited currently trades at $48.27 per share and has shown little upside over the past six months, posting a small loss of 1.8%. The stock also fell short of the S&P 500’s 13.9% gain during that period.
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Why Is BankUnited Not Exciting?
We’re cautious about BankUnited. Here are three reasons why there are better opportunities than BKU, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
BankUnited’s net interest income has grown at a 5.5% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) serves as a critical gauge of a bank’s fundamental profitability by showing the spread between interest income and interest expenses. It’s essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, we can see that BankUnited’s net interest margin averaged a weak 2.9%, meaning it must compensate for lower profitability through increased loan originations.
3. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
BankUnited’s flat EPS over the last five years was below its 4.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
BankUnited isn’t a terrible business, but it isn’t one of our picks. With its shares trailing the market in recent months, the stock trades at 1.1× forward P/B (or $48.27 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of BankUnited
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