Better Buy: WesBanco Or Home Bancshares?

Home Bancshares (HOMB) and WesBanco, Inc. (WSBC) are stocks with a lot of similarities. Both bank holding companies manage over 200 banks across multiple states. And both stocks have been significantly affected by the recent turmoil the banking and financial industry has faced.

WSBC stock has dropped 37.5% from its 52-week high, down to around $26 from $41 per share. HOMB hasn’t experienced that drastic of a drop, but it’s still down around 13%. HOMB is currently trading around $23 off of its 52-week high of $26.20.

Both companies have created positive growth in recent months, and both seem to have healthy financials. But the highly publicized failures of Silicon Valley Bank and First Republic Bank have shaken investors’ faith in the industry. With soaring interest rates, persistent inflation, and recession fears also plaguing the sector, banking stocks have taken a beating as a whole.

That’s why both Home Bancshares and Wesbanco issued strong statements in their first-quarter earnings calls that made it clear that these banks are far from the brink of collapse. WSBC reported an almost 12% increase in loans from the same time last year. Home Bancshares had an over 50% increase in revenue year-over-year (YOY). These positive signs caused investors to take a second look at both of these stocks.

So which is the better buy: HOMB or WSBC?

West Virginia-based WesBanco started in 1870 and has grown into a banking corporation with over 200 branches in six states. With a $1.33 billion market capitalization, Wesbanco is the second-largest bank in West Virginia. In 2019, Wesbanco acquired Old Line Bank to expand into Maryland, increasing the company’s total assets to over $15 billion.

Despite ongoing growth, the company still places its customers first. In Forbes’ 2022 ranking of the Best Banks in America, Wesbanco came in at #10. Forbes evaluated an array of different metrics to evaluate each company’s performance, including liquidity, growth, customer service rankings, and Return on Assets (ROA). Wesbanco has made the list 13 times since 2010, and 3 years in a row.

Home Bancshares is a much newer company, first starting as First State Bank in 1999. But the Arkansas-based company has grown much faster than Wesbanco, currently consisting of 222 banks. Home Bancshares’ most recent purchase was the Happy State Bank acquisition in 2022, which gave the company a foothold in Texas and added $6.91 billion in assets. Home Bancshares currently has a market capitalization of $4.04 billion.

In Forbes’ Best Banks in America ranking, Home Bancshares was listed as the #1 bank for 2018, 2019, and 2022. That’s due to the company’s consistent ability to provide a personal connection with its customers through its brick-and-mortar branches.

Due to inflation and soaring interest rates that have affected the banking industry as a whole, Wesbanco’s net income decreased around 4% from the same quarter in 2022, from $41.6 million to $39.8 million. Diluted earnings per share also dropped from $0.68 to $0.67 YOY.

But loans continued to grow, with an 11.9% YOY increase being one of the major highlights of the quarter. That’s a 7% annualized increase from the last quarter of 2022. The average deposit size was $27,000, a strong indicator that Wesbanco’s customers still believe in the company in spite of the industry issues.

A 1% ROA may not jump off the page, but any upwards trajectory is a positive at a time when a large part of the industry is experiencing declining ROA. Due to the complex nature of banks’ revenue, ROA can be a better indicator of a banking company’s profitability than other conventional values for stock evaluation.

It’s still useful to consider the company’s P/E ratio. Wesbanco’s P/E value of 7.52 is another healthy indicator, pointing to the fact that the company might be undervalued in relation to its competitors. And with a 6.9% annual dividend yield providing a $0.35 per share, the dividend is pretty attractive as well. The dividend also increased by 3% YOY.

In the first quarter of 2023, HOMB reported revenue of nearly $250 million, which is a 53% increase YOY. That’s because the company was able to take advantage of the elevated interest rates to fuel its loan business. Despite the rapid increase, total revenue was barely under the quarter’s estimated revenue.

Net income also increased dramatically, up over 58% from the same quarter in 2022 to around $106 million. Diluted earnings per share increased over 27% to $0.51. ROA rose to 1.84%, up from 1.43% YOY. Loans and deposits both increased from the last quarter of 2022.

HOMB’s P/E ratio of 11.82 may be higher than Wesbanco’s, but it’s still relatively low compared to the competition. The company’s 3.6% annual dividend yield means that investors receive a quarterly dividend of $0.18 per share. The dividend increased 9% YOY.

Investors are leery of bank stocks in general right now, and not without good reason. Silicon Valley Bank (SVB) and First Republic Bank failed earlier this year, and many analysts fear that banking customers who are concerned about their funds might decide to just withdraw them. That would lead to a large-scale run on the banks and the beginning of a financial catastrophe.

SVB was the victim of just such a run on the bank, and that’s why the bank failed. It had too little diversification, with most of its investments in tech clients located in nearby Silicon Valley. But the past year has been extremely hard on tech companies, causing many of the bank’s clients to dip into their accounts to keep the businesses afloat.

SVB was not prepared for the unexpected withdrawals, and it did not have the liquidity to meet the demand. It had tied up its money in poor long-term investments and it wasn’t able to cash out in time to keep the bank alive.

Neither Wesbanco nor Home Bancshares are in the same boat as SVB. Priority one in both of the banks’ 1st quarter earnings calls was to squelch any notion that these banks could fail. Wesbanco’s leadership asserted that the company is much more diversified than SVB, as its loan business is not tied to any particular industry.

The company was also quick to point out how well-capitalized it is and how firmly established the company has become. With over a hundred years of managing credit and risk, Wesbanco’s leadership said that it won’t fail any time soon.

Home Bancshares followed suit in its call, letting investors know that there are no liquidity or diversification concerns with this bank. The chairman and CEO of the company, John Allison, stated that Home Bancshares could pay every single one of its depositors back in full, and the company would still have $1.7 billion left over.

These banks have a lot in common, including the number of branches, consistently high third-party rankings, dedication to customer service, and recent growth in loans and deposits. Unfortunately, both stocks have experienced recent volatility as high interest rates, recession fears, and inflation continue to affect the financial industry.

In spite of the negativity swirling around the industry, investors are starting to come around on both stocks. WSBC shares are up around 18% over the past 30 days, and HOMB is up around 13%. Both stocks are trading in the mid $20 range, and given the possibility that volatility could drive them lower, now is a good time to consider a position in both of these stocks, as they are both trading at a discounted rate due to factors beyond their control.

But HOMB is a much bigger company despite the similar amount of banks. It has nearly three times the market capitalization of WSBC. And Home Bancshares has grown at a much more rapid pace, as the company’s aggressive mergers and acquisition strategy has fueled exceptional growth.

Forbes rated HOMB as the better bank, with Home Bancshares ranking #1 on the list of Best Banks while Wesbanco came in at #10. And WSBC experienced a slight decline in net income and revenue in the first quarter while HOMB brought in a 50% increase in revenue. WSBC has the better annual dividend yield, even though both stocks have paid and recently increased their dividend.

Both companies had a positive ROA, but HOMB’s was 1.84% and WSBC’s was 1%. WSBC, on the other hand, has a better P/E value at 7.52. Even though HOMB’s P/E value of 11.82 isn’t sky-high, it may be an indicator that WSBC is undervalued as compared to HOMB.

And that’s the main question. Even if Home Bancshares is the better company, it doesn’t mean that the stock will bring in the highest returns in the long run. As it stands, long-term investors looking to buy a great company at a discount may be more inclined to buy HOMB. But WSBC may be more undervalued, offering a better opportunity for higher gains for speculative investors.

Both HOMB and WSBC are solid stocks that are down due to industry issues, and that makes it a great time for investors to consider buying in.

Written by:

Wesley Grant is a business and personal finance content writer who has worked with leading brands from across the globe. His passion is creating valuable content that will inform business owners and educate consumers. Wesley earned his MBA from the University of South Carolina.