We bought a bank

On Friday, we initiated a new position in First Citizens Bank (FCNCA) - yes, the company that acquired Silicon Valley Bank (SVB) - and added to Raytheon (RTX) on behalf of members in our Opportunities strategy. 

If you’ve been following the markets over the last year or so, you may be wondering why we’re electing to initiate a position in the regional banking sector (a la SVB and First Republic). In short, we believe that First Citizens is a leading house in an undervalued neighborhood (growth banks). 

Let’s dive in.

One of the best houses in a great neighborhood

Founded all the way back in 1898, First Citizens Bank (FCNCA) is a classic story of the American Dream: a mom and pop shop that remains focused on what they're good at, slowly but surely outlasting the competition to become one of the leading regional banking franchises in the country. Since their founding, they’ve largely been able to compound capital through old school M&A: a strategy they’ve used 30+ times on smaller scale bank acquisitions. 

Smaller M&A was the name of the game until they used their expertise to purchase CIT Bank in 2020. Following this successful acquisition, the regional banking crisis in March 2023 allowed the company to then acquire the distressed assets of Silicon Valley Bank (yes, the one you saw on the news) on incredibly favorable terms and at a multi-billion dollar discount. 

Purchasing Silicon Valley Bank catapulted First Citizens into a nationwide footprint while dramatically expanding their products, services and customer types. 

Following the acquisition of SVB, we believe there are two main drivers underpinning FCNCA’s growth profile based on our current analysis:  

What this boils down to is an opportunity to invest in a company that is realizing the complimentary synergies of their recent acquisition (SVB) at the same time as their other hundred year old businesses begin hitting an inflection point in growth. 

Not only are our earnings estimates higher than the Wall Street consensus; we think the market is also valuing the stock at only ~1x near year’s tangible book value, a discount to not only FCNCA’s historical average valuation but also compared to valuations of slower-growing banks.

FCNCA’s well-capitalized balance sheet provides flexibility against whatever storm might be ahead, and we’re excited to own what we believe to be a high-quality compounder with idiosyncratic growth drivers at an attractive entry point.

Adding to Raytheon

Raytheon (RTX) delivered solid beat and raise results in Q2 with revenues, EBIT, EPS, and free cash flow all coming in above consensus estimates. High quality execution has enabled the company to revise guidance higher on the back of robust demand heading into 2025. The stock remains one of our best performing positions (+40% year-to-date) with continued technical support, and with tailwinds squarely at their backs, we elected to add to the company with conviction.

The results of the trade have increased our net exposure to 91%. We still have some strategic cash on hand to put back to work as we continue to build our investment pipeline with new prospects. We’d look to deploy that cash as we gain conviction on those prospects and/or in the event we see our existing positions pull back to attractive enough levels to add.

As always, let us know if you have any questions about the recent trades; we’re happy to assist.

– Your Titan Team

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