Downgrades
Raymond James analyst Michael Rose downgraded Bank of America Corp. to "market perform" from "outperform," driven primarily by the flattening of the yield curve and potential for additional rate cuts, which may pressure its net interest income.
Rose does not expect the company to generate positive operating leverage in 2020.
His operating EPS estimates are $2.83 for 2019 and $2.98 for 2020, down from his previous estimates of $2.84 and $3.05, respectively.
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Raymond James analyst William Wallace downgraded Baton Rouge, La.-based Business First Bancshares Inc. to "market perform" from "outperform," writing that its above-peer asset sensitivity may present greater challenges to spread revenue in the flattening yield curve and declining interest rate environment.
He maintained his non-GAAP EPS estimate at $1.85 for 2019 but lowered his 2020 estimate to $1.85 from $1.95.
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Rose downgraded Houston-based Cadence Bancorp. to "outperform" from "strong buy" following its disclosure that one of its restaurant shared national credits voluntarily filed for bankruptcy. Cadence's stock plummeted over 19% following an increase in net charge-offs largely related to four loans in the second quarter.
It will take at least several quarters for the bank to "prove" it has its asset quality issues under control, Rose wrote.
He maintained his operating EPS estimate at $1.98 for 2019 but increased his 2020 estimate to $2.06 from $2.05.
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Wallace downgraded Ruston, La.-based Origin Bancorp Inc. to "outperform" from "strong buy" and lowered the price target to $37 from $39.
The company's stock risk and reward is "incrementally less attractive" given the flattening yield curve and rate cut environment, which could present a greater challenge to spread revenue, he wrote. However, the company's shares are trading at a discount to its small-cap peer group which still leaves it "attractive," Wallace wrote.
His non-GAAP EPS estimates are $2.35 for 2019 and $2.50 for 2020, which is a decrease from his previous estimate of $2.55 for 2020.
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Rose downgraded Dallas-based Texas Capital Bancshares Inc. to "market perform" from "outperform" due to a drop in shorter-term London interbank offered rate and treasury yields, the potential for an additional 25-basis-point interest rate cut and "persistent" investor concerns on credit that will take the company several quarters to "'prove' they are under control," Rose wrote.
While the positive benefit of lower rates will be increased volume through its mortgage businesses, the contribution from this business will eventually become a headwind, and Rose projected a year-over-year drop in EPS in 2020.
His operating EPS estimates are $5.85 for 2019 and $5.60 for 2020, down from his previous estimates of $5.90 and $6.15, respectively.
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Raymond James analyst David Long downgraded Rosemont, Ill.-based Wintrust Financial Corp.'s stock rating to "outperform" from "strong buy," driven primarily by the continued decline in Libor rates and treasury yields and the inclusion of another 25-basis-point rate cut in his models.
Wintrust has a largely variable-rate loan portfolio, mostly tied to Libor, and movement will cause the company's yield on average assets to contract and put pressure on NIM, Long wrote.
However, he remains "bullish" on Wintrust's shares long term due to its attractive overall growth prospects, "excellent" credit quality metrics, healthy capital levels and a "core competency" in acquiring smaller banks within its footprint, the analyst wrote.
His non-GAAP estimates are $6.16 for 2019 and $6.46 for 2020, down from his previous estimates of $6.22 and $6.64, respectively.
Upgrades
Wallace upgraded Charleston, S.C.-based Carolina Financial Corp.'s stock rating to "strong buy" from "outperform," driven primarily by a better margin outlook than its peers due to having less pressure on loan yields.
Carolina Financial is modestly asset sensitive in the current rate cut and flattening yield curve environment, Wallace wrote. However, he believes its Crescent Mortgage Co. subsidiary may exceed expectations and offset those pressures.
He maintained his non-GAAP EPS estimate at $2.85 for 2019 but lowered his 2020 estimate to $2.90 from $2.95.
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Long upgraded Pasadena, Calif.-based East West Bancorp Inc. to "market perform" from "underperform" over valuation
Long thinks the bank will continue to face net interest margin and EPS pressure given its highly sensitive balance sheet. He also wrote that the bank's shares will be relatively volatile due to the ongoing trade war with China, despite its confidence investing in China.
He maintained his non-GAAP EPS estimate at $4.62 for 2019 but lowered his 2020 estimate to $4.88 from $5.02.
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Rose upgraded Memphis, Tenn.-based First Horizon National Corp. to "outperform" from "market perform" and established a price target of $18.
The lowering interest rate environment could benefit First Horizon's fixed-income and mortgage warehouses business and lead to relatively solid loan growth, Rose wrote.
He maintained his operating EPS estimate at $1.60 for 2019 but cut his 2020 estimate to $1.60 from $1.65. The estimates reflect a potential 25-basis-point Federal Reserve rate cut in September and December.
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Rose upgraded Dallas-based Hilltop Holdings Inc. to "outperform" from "market perform" and established a price target of $26.
Hilltop has a more complex model compared to the majority of its traditional and super community peers with fee income representing over 70% of total revenue, Rose wrote. The lowering interest rate environment will benefit Hilltop's mortgage and fixed-income businesses and outweigh pressure on NIM, the analyst wrote.
If rates continue to fall, Hilltop will be one of the few banks where positive EPS could continue, Rose wrote.
His operating EPS estimates are $1.98 for 2019 and $1.80 for 2020, up from his previous estimates of $1.88 and $1.72, respectively.
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Wallace upgraded Toms River, N.J.-based OceanFirst Financial Corp. to "strong buy" from "outperform" following the company's "double deal" announcements Aug. 9.
OceanFirst's shares are down about 9% since the deal announcements, causing it to trade lower than its small-cap peer group. Wallace wrote that he sees that as unwarranted given his expectation for above-peer profitability metrics through 2020.
His non-GAAP EPS estimates are $2.05 for 2019 and $2.10 for 2020.
