Deal-related ratings changes
Sandler O'Neill analyst Nicholas Cucharale upgraded Defiance, Ohio-based First Defiance Financial Corp. to "buy" from "hold" based on its announced acquisition of Youngstown, Ohio-based United Community Financial Corp. The analyst raised his 2020 earnings per share estimate by 15 cents to $2.57 per share, and provided a 2021 EPS estimate of $2.68.
"We have been waiting for a catalyst to emerge on this quality name and the opportunity afforded by a compelling transaction with two high-performing institutions warrants a closer look," Cucharale wrote in a note.
Cucharale cited the "deep discount" at which First Defiance is trading relative to its Midwestern peers as part of the reason for the upgrade. The complementary geographies of the deal, enhanced scale and quick earnback period, as well as achievable cost savings and a "healthy capital base" were also listed as reasons for the upgrade.
Meanwhile, Raymond James analyst Daniel Cardenas downgraded United Community to "market perform" from "outperform" to match the "market perform" rating Raymond James has on First Defiance.
"Given the announced acquisition, we expect [United Community] shares will trade in line with [First Defiance] shares until the deal closes," he wrote.
The analyst maintained his 2019 and 2020 operating EPS estimates of 82 cents and 90 cents, respectively.
Downgrades
Sandler O'Neill analyst Andrew Liesch downgraded Santa Ana, Calif.-based Banc of California Inc. to "hold" from "buy." The rating is based on "an 8-K disclosing a $35 million loan loss provision and related charge-off on a commercial line of credit extended to a company engaged in the financing of California liquor licenses," according to the note.
While the bank intends to pursue repayment and take steps to mitigate the loss, the provision and swap cancellation charges will reduce earnings per share by 54 cents. As a result, the analyst lowered his 2019 EPS estimate by 57 cents to 7 cents per share and his 2020 EPS estimate by 2 cents to 89 cents per share. The price target was lowered to $15.50.
Banc of California also announced a large provision in 2018. "While we were willing to look past the first credit issue as a one-off event, we cannot do that following this second disclosure," Liesch wrote.
