East West Bancorp

East West Bancorp Inc is assigned a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a price consistent with our quantitative fair value estimate, which has a high uncertainty rating.

The company's valuation metrics decrease our estimated fair value. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. Reflecting the firm's valuation is its enterprise value to market value ratio of 0.9, which falls in the bottom 30% compared with peers globally. The market value of equity makes up a large fraction of enterprise value, indicating that shares have sharply risen, or that the company has a "lazy" balance sheet that is underleveraged. This contributes to our balanced fair value estimate.

On a different note, the firm's profitability is reassuring. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's earnings yield of 8.1%, a core component of profitability, lies in the top 30% globally. This suggests that it is generating substantial earnings relative to its share price, which further promotes our neutral price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is fairly-valued, this outperformance had a negative impact on our valuation estimate.

The narrow moat rating for this company indicates investors can expect it to generate 10 years or more of excess returns on capital due to its respectable competitive advantages. Its moat is bolstered by its strong financial health, which indicates low near-term bankruptcy risk.