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Street Talk | Episode 111: Bearish bank investor turns bullish


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AnalystDavid Long of Raymond James upgraded his rating of Evansville, Ind.-basedOld National Bancorpto "outperform" from "market perform," and set a new pricetarget of $14 for the company. EPS estimates were increased to 97 cents from 94cents for 2016, and to $1.06 from $1.04 for 2017.

The analystwrote that investors are underappreciating the company's better-than-peer 2017EPS growth projection; a relatively high return on tangible common equity; itsconservative underwriting; and strong dividend payout ratio. He added that OldNational is well-positioned to grow organically, leveraging its infrastructureinto its relatively new geographies. There are also opportunities for expenserationalization, Long said. The analyst also stated that the company may see apickup in loan growth, which could rise to high-single-digit growth in 2016,compared to management's guidance of mid-single-digit loan growth for the year,should the local economy remain healthy.

FBR &Co. analyst Bob Ramsey described Seacoast Banking Corp. of Florida as an "attractivebanking franchise," upgrading his stock rating for the company to"outperform" from "market perform." He also raised theprice target for the company's stock to $20 from $16.

Ramseywrote that he believes BasswoodCapital Management LLC's material disclosure, as well as itsobserver rightsagreement with Seacoast is a positive for the Stuart, Fla.-basedcompany, as it could either prompt Seacoast to deliver better performance orpossibly sell itself eventually for an estimated $18 per share to $25 pershare. He also noted that the company is located in attractive geographies withrobust organic loan growth, low-cost deposits, and scalable profitability.

EPSestimates for the company were maintained at $1.00 and $1.15 for 2016 and 2017,respectively.


AnalystJoseph Fenech of Hovde Group downgraded his rating of to "marketperform" from "outperform," also lowering his price target to$17 for the company's stock from $18. EPS estimates were unchanged at $1.04 for2016 and $1.19 for 2017.

Accordingto the analyst, the downgrade is due to the intensifying environmentalheadwinds that Southwest is facing, along with other companies that haveexposure to the energy industry. He added that he sees limited catalysts to theupside for energy-exposed banks.

However,Fenech also noted that the Stillwater, Okla.-based company has a healthyreserve cushion, and it has sufficient capital to weather "virtually anynegative scenario we can envision with respect to energy." He also feelsthat there is limited downside to the company's shares and the stock is alsoexpected to outperform other energy-exposed companies.

The company recently reported concerns related to $10million outstanding in commercialand industrial loans, made to a borrowing relationship composed ofmultiple affiliated funds, in a Form 10-K filed March 7. That borrower is underan ongoing investigation by the SEC.

Fenech alsodowngraded his rating of GermanAmerican Bancorp Inc. to "market perform." The pricetarget for the stock was $35.00 while EPS estimates were unchanged at $2.34 for2016 and $2.58 for 2017.

Thedowngrade follows a recent strong run of the company's stock in the market,with the analyst writing that he feels that the stock is currentlyappropriately valued. The analyst added that he sees limited upside to hisprice target. However, Fenech added that he still sees the company's stock as"a core holding for community bank investors" and sees no reason forGerman American's recent strong fundamental performance to stall in the firstquarter.

Coverage transfer

SandlerO'Neill & Partners' coverage of Midland, Mich.-based was transferredto analyst R. Scott Siefers, due to a "realignment of analystcoverage." The rating of "buy" was reiterated for the company'sstock, with a $40 price target. The 2016 EPS estimate was increased to $2.67from $2.61, while the 2017 EPS estimate was kept at $3.05.

The analystcited the company's pending deal with Troy, Mich.-based as a positive, ashe expects it to offer cost savings, and EPS accretion, in addition to allowingChemical Financial to enter a new market, namely Northeast Ohio. The analystalso wrote that he expects first-quarter EPS of 63 cents, with net interestmargin dropping by six basis points to 3.58% and net charge-offs coming in at15 basis points of average loans (annualized).