First Financial Bankshares (FFIN) recently expanded its share repurchase authorization by 2,200,000 shares to a total of 7,200,000 and extended the program through July 31, 2027, indicating a continued focus on shareholder returns.

The buyback extension arrives after a solid run in First Financial Bankshares' share price, with a 90 day share price return of 8.65% and a year to date share price return of 17.99%. However, the 5 year total shareholder return is down 21.13%, which shows recent momentum alongside a weaker longer term record.

If this kind of capital return story has your attention, it can be useful to widen the lens beyond one regional bank and check out other financials through discovery tools like the 19 top founder-led companies

First Financial Bankshares has rallied and now trades only about 4% below the average analyst target, yet screens at a roughly 24% discount to one estimate of fair value. Is the market’s caution on this slower growing regional bank still justified?

Preferred P/E Multiple of 18.7x: Is It Justified For First Financial Bankshares?

Based on current data, First Financial Bankshares trades on a P/E of 18.7x, with a share price of $35.42 that screens as below one cash flow based fair value estimate but above several peer and model comparisons.

The P/E multiple compares the current share price to earnings per share and is a common way investors frame what they are paying for a bank's profit stream. For First Financial Bankshares, this 18.7x level sits against forecast earnings growth of about 9% per year and a track record of 2.2% annual earnings growth over the past 5 years, with the most recent year coming in stronger at 9.5%.

The tension for investors is that the SWS DCF model points to an estimated future cash flow value of $46.52, which implies the current $35.42 price is below that fair value. At the same time, the same earnings profile leaves First Financial Bankshares looking expensive on simpler P/E checks. The company is described as trading at a 23.9% discount to this DCF based fair value. Yet the current 18.7x P/E is above both the estimated fair P/E of 13.2x and the peer average of 12.8x, as well as the wider US Banks industry average of 11.9x. This sets a high bar if the market eventually leans toward the lower fair ratio level.

Result: Price-to-earnings of 18.7x (OVERVALUED)

However, investors still face risks if credit quality weakens in First Financial Bankshares' Texas markets, or if future earnings growth falls short of current P/E expectations.

Another View On First Financial Bankshares Using DCF

A different lens is the SWS DCF model, which estimates First Financial Bankshares' future cash flow value at $46.52 per share compared with the current $35.42 price. On this view the stock screens as undervalued, so how should you weigh this against the richer 18.7x P/E?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out First Financial Bankshares 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 53 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

The debate around First Financial Bankshares will not be settled by one metric or model, so it makes sense to review the underlying data yourself now and decide where you stand based on the 4 key rewards.

Looking for more investment ideas beyond First Financial Bankshares?

If you are weighing what to do with First Financial Bankshares, it makes sense to scan a wider field of stocks so you are not missing better risk reward trade offs.

• Spot potential bargains that pair quality with attractive pricing by checking stocks highlighted in the 53 high quality undervalued stocks.
• Strengthen the defensive side of your portfolio by focusing on companies featured in the 82 resilient stocks with low risk scores.
• Get ahead of the crowd by reviewing underfollowed companies surfaced in the screener containing 18 high quality undiscovered gems.

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.