TowneBank’s special dividend and what it means for shareholders

TowneBank (TOWN) has drawn fresh attention after declaring a one time special dividend of $0.70 per share, linked to the gain from selling its Resort Property Management business for $250 million.

The special dividend and Q1 earnings update have come alongside a 5.4% 1 month share price return and a 7.6% year to date share price return, while the 3 year total shareholder return of 71.3% points to meaningful long term gains.

If TowneBank’s news has you thinking about where else value could surface, it may be worth scanning for opportunities in high quality founder led businesses via the 17 top founder-led companies.

With TowneBank trading at $35.73, showing an estimated intrinsic discount of 56.8% and a 12.7% gap to the current analyst target, investors may want to consider whether there is real value here or whether the market is already pricing in future growth.

Price to earnings of 19.6x: Is it justified?

TowneBank is trading at a P/E of 19.6x, which sits above both its US Banks industry average and peer group, so the current share price reflects a richer earnings multiple than many competitors.

The P/E ratio compares the share price to earnings per share and, for banks, it often reflects what the market expects from future profitability, credit quality, and growth in interest and fee income. A higher than average P/E can indicate that investors are willing to pay more for each dollar of earnings, but it can also mean expectations are already built into the price.

For TowneBank, the 19.6x P/E is materially higher than the US Banks industry average of 11.4x and above the peer average of 16.5x. This suggests the market is attaching a premium to its earnings compared with many other banks. Compared with the estimated fair P/E of 17.1x, the current multiple also sits above the level the market could move toward if attitudes to TowneBank’s earnings profile and growth prospects aligned more closely with this fair ratio estimate.

Result: Price to earnings of 19.6x (OVERVALUED)

However, a premium 19.6x P/E can quickly look stretched if revenue of $877.2m or net income of $166.8m come under pressure, or if credit conditions tighten.

Another view: DCF points in the opposite direction

While the 19.6x P/E suggests TowneBank is priced richly, the SWS DCF model points the other way, with an estimated future cash flow value of $82.75 per share versus a market price of $35.73. That 56.8% discount presents a very different picture. Which signal matters more to you?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TowneBank 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 51 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 mix of premium valuation signals and a discounted DCF view pulls sentiment in different directions, so it makes sense to review the numbers yourself and decide where you stand. To quickly see the balance of concerns and potential upsides that others are focused on, check out the 3 key rewards and 2 important warning signs

Looking for more investment ideas?

If TowneBank has caught your attention, do not stop here. Broaden your watchlist with fresh ideas that match different goals so you are not relying on a single story.

• Target potential mispriced opportunities by scanning 51 high quality undervalued stocks that blend quality fundamentals with attractive valuations.
• Strengthen your income focus by reviewing 13 dividend fortresses that aim to pair higher yields with resilience.
• Lower your overall portfolio risk by filtering for 70 resilient stocks with low risk scores that score well on balance sheet strength and earnings stability.

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.