United Bankshares (UBSI) has drawn investor attention after its board declared a third quarter dividend of $0.38 per share and authorized a new share repurchase plan covering up to 6.8 million shares.

At a share price of $47.45, United Bankshares has seen a 23.60% year to date share price return and a 27.38% total shareholder return over the past year, with the recent board decisions on dividends and buybacks coming after this period of stronger momentum.

Scan how United Bankshares compares with other income focused banks by reviewing our curated 11 dividend fortresses that pairs higher yields with an emphasis on consistency and balance sheet strength.

United Bankshares now trades below both its internal fair value estimate and the average analyst target, even after a strong run. Is that a sign the market is too cautious on this dividend track record, or a warning worth heeding?

Preferred P/E of 12.5x: Is it justified for United Bankshares?

On traditional metrics, United Bankshares looks slightly expensive, with a P/E of 12.5x against the US Banks industry at 11.8x and an estimated fair P/E of 11.7x. That puts the stock at a premium to both its sector and the level the SWS fair ratio suggests the market could move toward over time.

The P/E multiple compares United Bankshares's share price with its earnings per share, so it reflects what investors are willing to pay today for each dollar of current earnings. For a bank, this often folds in views on stability of earnings, asset quality and the sustainability of dividend payments.

Here, the company is priced above the sector and above the fair P/E implied by the SWS model, even though the SWS DCF model indicates the shares trade around 27.9% below its future cash flow value of $65.84. That mix can signal that the market is assigning a richer tag to current earnings than peers, while the DCF framework places more weight on projected cash flows and discount rates that point to a higher intrinsic value.

Compared with the US Banks industry average P/E of 11.8x, United Bankshares at 12.5x carries a clear premium. Set against the SWS fair P/E of 11.7x, the current multiple also sits above the level the fair ratio model suggests could be more in line with its fundamentals, which is worth keeping in mind as sentiment around bank earnings shifts over time.

Result: Price-to-earnings of 12.5x (OVERVALUED)

However, United Bankshares still faces risks if earnings weaken or credit costs rise, which could pressure the current P/E premium and future dividend decisions.

Another view on United Bankshares valuation

While the current 12.5x P/E suggests United Bankshares trades a little rich against the US Banks industry at 11.8x and the 11.7x fair ratio, the SWS DCF model paints a different picture. At $47.45, the shares sit about 27.9% below an estimated cash flow value of $65.84. That raises a key question for you as an investor: Which signal deserves more weight, the earnings multiple premium or the discount to modeled cash flows?

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

Feeling that the United Bankshares story could go either way from here? Take a moment to review the key positives in the data and then weigh the 3 key rewards.

Looking for more investment ideas beyond United Bankshares?

If United Bankshares has sharpened your focus on opportunities, do not stop here. Broaden your watchlist with stocks that match different goals, risk levels and income needs.

• Target reliable income and capital discipline by reviewing a curated set of high yield opportunities through the 11 dividend fortresses that aims to balance payouts with financial strength.
• Zero in on companies that combine quality with pricing appeal by scanning the 51 high quality undervalued stocks and see which stocks currently trade on more modest expectations.
• Strengthen your defensive side by checking a list of solid balance sheet and fundamentals (51 results) that focuses on businesses with cleaner finances and more resilient fundamentals.

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.