Best Smidcap Ideas: B/S Tailwinds & AI Efficiency Gains Set Stage For Re-Rating

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Best Smidcap Ideas: B/S Tailwinds & AI Efficiency Gains Set Stage For Re-Rating

rowth and ROTCE expansion driven by structural tailwinds. With limited

Dividend: $0.44

visibility on the Fed's path and the broader macro, VLY stands out for its company-specific

Yield: 3.1%

drivers of earnings growth. We see multiple structural levers supporting significant EPS growth

and ROTCE expansion through 2027.

FY 2025A 2026E 2027E

(Dec) AI-driven efficiency gains not fully reflected in Street estimates. We see VLY emerging as a

EPS leader in AI adoption among mid-cap banks, supported by (1) a tech-forward leadership, (2)

Q1 $0.18 $0.29A - a differentiated build-and-buy approach to AI, and (3) unique access to innovation through

Q2 $0.22 $0.30 - Valley Ventures and the Israeli technology ecosystem (VLY banks ~50% of Israeli start-ups with

Q3 $0.28 $0.33 - a US presence). We see a multi-year runway for efficiency gains and revenue enhancement,

Q4 $0.31 $0.35 - resulting in sustained positive operating leverage. We project the efficiency ratio improving

Year $0.99 $1.27 $1.56 from 53% in 1Q26 to 49% by YE26 and 46% by YE27 (vs. Street: 48%). Click here to learn more

from our recent VLY meeting takeaways note.P/E 14.4x 11.2x 9.1x

Consensus EPS $0.99 $1.28 $1.55 CRE overhang to diminish. Despite concerns around VLY's CRE exposure, cumulative losses

Consensus source: FactSet have totaled just ~70 bps since 2024—well below what many investors feared. We believe the

CRE overhang will continue to recede—particularly in NYC despite Mamdani-related concerns

—as property market fundamentals stabilize and improve, with VLY's criticized CRE assets

likely continuing to decline.

Catalysts & Milestones To Watch