Truist Financial (TFC) is back in focus after the bank said it will redeem all US$1.5b of its fixed to floating rate senior notes a year early, a move that directly affects creditors.

The US$49.20 share price reflects a bank that has had shifting sentiment this year, with a year to date share price return that is slightly down, yet a 1 year total shareholder return of 27.14% and a 3 year total shareholder return of 79.68%, which points to stronger longer term momentum. Recent moves, including the planned early redemption of senior notes and mixed quarterly results with EPS ahead of expectations but softer net interest income, have contributed to changing views on both growth potential in core and fee businesses and the level of risk investors are prepared to take.

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With Truist posting solid multi year total returns, reporting above consensus results, and trading below some analyst targets and intrinsic estimates, you now have to ask: is there still value on the table, or is future growth already priced in?

Price-to-Earnings of 11.8x: Is it justified?

On a P/E of 11.8x at a $49.20 share price, Truist Financial screens as slightly more expensive than the broader US banks industry, yet cheaper than its closer peer set and its own estimated fair level.

The P/E multiple compares the current share price with the earnings per share and is a quick way to see how much investors are paying for each dollar of earnings. For a large regional bank like Truist that has just returned to profitability and pays a 4.23% dividend, this yardstick ties the valuation directly to the earnings profile that supports that payout.

Here, the picture is mixed. The stock is described as expensive relative to the US banks industry average P/E of 11.6x, but good value versus a peer average P/E of 13.5x and an estimated fair P/E of 13.1x that our models point to as a level the market could move toward. That sits alongside forecasts for earnings growth of 5.12% per year, a low current and forecast return on equity, and a DCF view suggesting the shares trade below an estimated future cash flow value of $75.45. Together, these factors frame a company where the market is paying a modest premium to the wider industry, but a discount to both peers and modelled fair value.

Result: Price-to-Earnings of 11.8x (UNDERVALUED).

However, you still need to watch for weaker net interest income trends and any hit to funding flexibility as Truist redeems US$1.5b of fixed-to-floating notes early.

Another View: What the SWS DCF Model Says

The P/E points to modest undervaluation, but the SWS DCF model goes further, with an estimated future cash flow value of $75.45 versus the current $49.20 share price. That 34.8% gap suggests the cash flow story is stronger than the earnings multiple alone implies. The key question is which signal you place more weight on at the moment.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Truist Financial for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Feeling torn between the risks, rewards, and fair value signals around Truist? Take a closer look at the underlying data now and see how the 4 key rewards

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.