Dallas-based Veritex is the IBD Stock Of The Day as the community bank stock tests support below a buy point. Veritex reported above-forecast fourth-quarter results on Tuesday, helping to boost a key strength indicator to a fresh high.
Veritex Holdings easily beat Wall Street earnings estimates for the fourth quarter, reporting loans up 16% and a 13% increase in deposits. The regional bank also grew its production and back-office teams with 166 new hires last year, investing for growth in 2022.
Regional banks and bank stocks should benefit from rising interest rates, which tend to boost net interest margins. With inflation affecting consumers and the broad economy, the Federal Reserve made clear this week it was set to hike interest rates more aggressively.
The SPDR S&P Regional Banking ETF is up 1.8% year to date through Jan. 26, vs. an 8.8% decline for the SPDR S&P 500 ETF, which tracks the largest publicly traded companies. Gains for some individual regional bank stocks have been mixed. Citizens Financial Group is up more than 9%. Associated Banc and Wintrust Financial are up more than 5%. Meanwhile, shares of Veritex are down 0.3%, as the stock wraps up its 10-week consolidation.
Bank Stock: Veritex Technical Analysis
Shares fell 3.8% to 39.47 on the stock market today, undercutting the 50-day/10-week line afresh. Veritex stock is working on a 43.43 cup-with-handle buy point. It sits 9% below the entry. Aggressive investors could potentially use Wednesday's high of 42.95, which marked a trendline break, as an early entry.
However, even moderately early entries carry additional risk. And making purchases while the market status reads "in correction" compounds that risk.
On Wednesday, the Fed set the stage for an interest-rate increase in March. Policymakers signaled that a stock market pullback won't stop the Fed from steadily tightening policy. Regional bank stocks moved generally lower on the news. Veritex stock rose 1.2% in choppy trade Wednesday.
The relative strength line for VBTX stock is making a new high Thursday, according to MarketSmith chart analysis. Such moves to new highs ahead of a potential breakout are an especially bullish sign, and can be seen on the weekly chart.
Citizens Financial stock rose 1% Thursday. The stock broke out above a 51.64 buy point earlier this week.
The West-Southwest banks industry group is acting well, ranked No. 18 out of 197 groups on Thursday, according to IBD Stock Checkup.
Veritex stock's IBD Composite Rating, which combines key fundamental and technical metrics in a single easy-to-use score, is a strong 94 out of 99.
It holds an equally strong Relative Strength Rating of 95 out of a possible 99. That means this bank stock has outperformed 95% of all stocks in the past year.
The Stock Checkup tool also shows VBTX as having logged six quarters of rising fund ownership.
Veritex Earnings and Fundamentals
On Jan. 25, Veritex posted a 78% EPS increase for the December quarter on a 23% revenue gain, according to FactSet. Both earnings and revenue handily beat estimates. For all of 2021, Veritex earnings rebounded nearly 87% and revenue 8%.
Both earnings and revenue are expected to grow further in 2022 and 2023, FactSet says. They fell in 2020 amid the pandemic.
The Texas bank stock sports a superior EPS Rating of 92 out of 99.
Over the last three quarters, Veritex earnings growth averaged 42%, well above the three-year average of 8%. Sales growth in recent quarters has come in under the 25% or higher level a CAN SLIM investor would want to see, but accelerated to 23% in the latest quarter.
New investments and acquisitions are poised to swell earnings further. Those include a 49% investment in Thrive Mortgage and the purchase of North Avenue Capital, a leader in USDA lending, both in 2021.
Veritex derives interest income from loans, debt securities, deposits and equity investments. It also generates non-interest income from service fees on deposit accounts, loan fees and the like.
Find Aparna Narayanan on Twitter at @IBD_Aparna.
