3 Reasons to Sell BKU and 1 Stock to Buy Instead

Over the last six months, BankUnited’s shares have sunk to $36.34, producing a disappointing 7.7% loss - a stark contrast to the S&P 500’s 5.2% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.

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Why Is BankUnited Not Exciting?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why we avoid BKU and a stock we'd rather own.

1. Net Interest Income Points to Soft Demand

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

BankUnited’s net interest income has grown at a 5% annualized rate over the last four years, worse than the broader bank industry. 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 represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.

Over the past two years, we can see that BankUnited’s net interest margin averaged a poor 2.7%, meaning it must compensate for lower profitability through increased loan originations.

3. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

BankUnited’s unimpressive 2.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Final Judgment

BankUnited isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 0.9× forward P/B (or $36.34 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than BankUnited

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