Trustmark has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 14% to $40.29 per share while the index has gained 13.3%.
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Why Is Trustmark Not Exciting?
We're cautious about Trustmark. Here are three reasons we avoid TRMK and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Trustmark’s net interest income has grown at a 8.6% annualized rate over the last five years, slightly worse than the broader banking industry. 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.
2. Efficiency Ratio Expected to Falter
Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.
Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.
For the next 12 months, Wall Street expects Trustmark to become less profitable as it anticipates an efficiency ratio of 63.4% compared to 61.7% over the past year.
3. Previous Growth Initiatives Haven’t Impressed
Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.
Over the last five years, Trustmark has averaged an ROE of 7.2%, uninspiring for a company operating in a sector where the average shakes out around 7.5%.
Final Judgment
Trustmark’s business quality ultimately falls short of our standards. That said, the stock currently trades at 1.1× forward P/B (or $40.29 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.
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