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Hovde Group upgrades IBERIABANK


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Hovde Group upgrades IBERIABANK


* Hovde Group analyst Joseph Fenech upgraded Lafayette, La.-based IBERIABANK Corp. to "outperform" from "market perform" and increased his price target to $87 from $82.

The analyst noted that the company has faced below-peer profitability in the past, and that its M&A strategy sometimes distracts it from optimization efforts. Fenech noted that the deal with Sabadell United Bank NA is no exception. The deal, he said, was not "all that compelling or additive to the current profitability profile."

Fenech attributed the upgrade to three factors. First was valuation. The analyst said the stock — up 16% since the U.S. elections, but down 7% from before the Sabadell deal announcement — is now "attractive." Second, he noted that the company's balance sheet is well-positioned for the current market environment and that he expects the company's fundamental financials to improve. Third, the analyst expects the company to lie low in M&A transactions upon completing the Sabadell deal, which Fenech sees as a good thing.


* Sandler O'Neill & Partners analyst Brad Milsaps initiated coverage of Mount Pleasant, Texas-based Guaranty Bancshares Inc. with a "hold" rating and set his price target at $34.

After its recent initial public offering, the company now has excess capital and ample liquidity, which could help improve growth and aid in potential M&A transactions, Milsaps wrote.

According to the analyst, the company has a five-year plan that is focused on expanding into the Dallas-Fort Worth and Bryan-College Station metropolitan statistical areas in Texas. From there, it plans to leverage investment by building upon its small market share and improve profitability. He also added that the company is aiming for a 1.00% return on average assets by the end of 2018.

The analyst noted that the company has an opportunity to leverage its existing infrastructure and improve its below-peer profitability over time. However, the analyst said the recent improvement could be related to the company's likely inclusion in the Russell 2000 index.

Industry reports

* Morgan Stanley analyst Ken Zerbe upgraded his industry view for midcap banks to "in-line." He also upgraded Prosperity Bancshares Inc. and People's United Financial Inc. to "equal-weight."

The price target for Prosperity was increased to $65 from $63, while the price target for People's United is now $17.50, up from $16.50.

According to the analyst, midcap banks have underperformed the S&P 500 and are trading at a discount to the market. He also noted that his EPS estimates for the banks have increased 3.4% on average. He also said the banks are "being valued more on 2018 earnings ... than 2017." He wrote that the companies have a median of 8% upside, trading at 14.5x his 2018 EPS estimate.

Zerbe said the only positive catalyst that could change his rating is corporate tax reform. However, he noted that progress on such reforms has been slower than what the markets have expected.

The analyst recommended owning SVB Financial Group's shares, which are currently trading at 15.2x his 2018 EPS estimate, stating that the market is ignoring the company's 18% loan growth, 21% EPS compound annual growth rate through 2019, and the highest level of asset sensitivity. Zerbe's other recommendations for midcap banks include: Signature Bank, KeyCorp, Citizens Financial Group Inc. and BankUnited Inc., all of which have at least 20% upside to his price target and all of which are rated "overweight."

* Baird Equity Research analyst David George upgraded Fifth Third Bancorp and SunTrust Banks Inc. to "neutral" from "underperform."

He maintained his price target for Fifth Third Bancorp at $24, and for SunTrust Banks at $52.

The analyst wrote that Fifth Third Bancorp shares have declined approximately 12% year-to-date, which reflects weaker near-term loan and net interest income growth due to runoff in its commercial and auto loan portfolios. Its efficiency targets are also limited because of the required revenue improvement, but downside risks are more limited with the shares trading in line with peers on 2018 price-to-earnings ratio.

Meanwhile, he said SunTrust Bank's risk/reward looks more balanced now as the company's price-to-earnings ratio premium now moves back to peer median. He further noted that the company had consistently delivered steady improvement in operating leverage, solid loan growth, and better-than-expected fees given returns on investment and/or corporate banking investments.

George further wrote that industry trends and management updates have "generally lowered expectations for second-quarter results." He noted that loan growth in the second quarter is poised to look like that of the first quarter and that net interest margin will continue to improve. Asset quality continues to be solid, he said, despite concerns about increasing consumer debt. He also added that capital return continues to rise as banks push the 100% payout threshold, alongside the net interest margin "tailwind" in the third quarter from the likely June rate hike.