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Raymond James upgrades 8 energy-exposed banks


Raymond James analysts think that "the worst case is alreadybaked in for energy-exposed banks," especially after reporting first-quarterearnings.

The analysts believe that real estate-related risk is the "biggerissue." They noted that the next few quarters might show further increasesin energy loan provisioning, but at a decelerating rate.

Raymond James said in the report that consensus provision forecasts,particularly for 2017, might be too aggressive, if "credit contagion remainsrelatively benign."

Following their recent stress test, the analysts concluded that,in their base case scenario, almost all the energy-exposed banks already have enoughreserves and provisions baked into estimates. They believe that Street expectationsstill reflect worst case for oil prices, while their outlook suggests that oil productionhas already hit its near-term peak.

"Clearly, the energy lender's high correlation with crudeprices made the start of the year extremely difficult in terms of performance forthe sector.

As a result, Raymond James upgraded eight energy-exposed banks,while downgrading two regional banks.

Analyst William Wallace IV upgraded High Point, N.C.-based to "outperform"from "market perform," based on valuation.

The analyst maintained his 2016 and 2017 EPS estimates at $1.58and $1.85, respectively, and set a price target of $24. The analyst noted that thecompany stock has decreased roughly 13%, year-to-date, compared to a 5% declinefor the Nasdaq Bank index. He believes the recent sell-off was overdone, especiallyas the company continues to build earnings momentum following the upcoming closureof its pending acquisitions of SouthcoastFinancial Corp. and HighPoint Bank Corp.

Wallace also increased his rating for Lafayette, La.-based to "strongbuy" from "market perform" and set a price target of $12.

The analyst reiterated his 2016 and 2017 EPS estimates of 65cents and 90 cents, respectively.

Following his conversation with management, Wallace believesthat many of the businesses in MidSouth's energy portfolio are starting to see anincrease in activity. The analyst did not rule out the possibility of further creditdowngrades but is confident that pressures are manageable.

Another Raymond James analyst, Michael Rose, upgraded Tulsa,Okla.-based BOK Financial "outperform" from "market perform," and established a $65target price.

The analyst maintained his 2016 and 2017 EPS estimates at $3.80and $4.60, respectively.

In his view, the company's loan loss provision estimates arepotential opportunities for positive EPS revisions, if the forecast for oil pricesplay out as anticipated. He noted that the company's energy exposure of approximately18.9% of total loans will continue to give investors pause as the energy cycle playsout. However, the reiteration of the company's loan loss provision outlook of $60million to $80 million for 2016 shows that the peak in quarterly loan loss provisionslikely occurred in the first quarter.

Dallas-based ComericaInc. was upgraded to "outperform" from "market perform,"with a 12-month price target of $48.

The analyst maintained his 2016 and 2017 EPS estimates at $2.46and $3.15, respectively.

He noted that the company "is not without controversy givenits sub-par profitability, recent hiring of outside consultants to address profitabilityconcerns, the push by activist investors (and others) to sell the company, and thesudden departure of its CFO." However, he thinks that these events are fullyreflected in the company's share price.

Rose also raised his rating for Gulfport, Miss.-based to "outperform"from "market perform," and set a price target of $29.

He reiterated his 2016 and 2017 EPS estimates of $1.51 and $2.20.

The analyst noted that his stance is disconnected from the company'srecent fundamental performance and is likely the most controversial of his ratingschanges, given the company's higher energy service exposure. However, he thinksthat the company's underlying improvement in projected pre-tax, pre-provision earningsperformance, waning quarterly loan loss provisions, and its takeout appeal, willbenefit the shares compared to current levels.

Houston-based ProsperityBancshares Inc. was upgraded to "outperform" from "underperform,"as Rose set a 12-month price target of $58.

Rose maintained his 2016 and 2017 EPS estimates of $4.05 and$4.15, respectively.

The analyst's rating reflects his comfort with the company'senergy portfolio size and reserve allocation, and its sub-book value valuation.He is also less concerned with the company's west Texas and Oklahoma real estateexposure given the recent increase in oil prices.

Rose upgraded Dallas-based Texas Capital Bancshares Inc. to "strong buy" from"outperform," and increased his price target to $52 from $48.

The analyst maintained his 2016 and 2017 EPS estimates at $3.10and $3.60, respectively.

The analyst's rating reflects the management's confidence inits loan loss provision guidance in the mid-$60 million range for 2016, as he iscurrently estimating $65.8 million in loan loss provision, compared to the Streetconsensus of $75.4 million. The rating also reflects the company's solid credittrends excluding energy, and potential for upward EPS revisions, in case the Fedincreases rates again in 2016.

Another Raymond James analyst, David Long, upgraded Salt LakeCity-based Zions "strong buy" from "market perform," and set a $31 targetprice.

The analyst maintained his 2016 EPS estimate at $1.70, but increasedhis 2017 EPS estimate to $1.98 from $1.90, to account for lower loan loss provisions.

The analyst believes that the risk to the company's energy-relatedloan portfolio has declined. Furthermore, he noted that Zions remains one of themost asset-sensitive banks. If the Fed raises interest rates before his forecastfor the next rate hike in June 2017, he said it will provide considerable upsideto EPS estimates.

Guggenheim Securities LLC analyst Eric Wasserstrom upgraded McLean,Va.-based Capital One Financial "neutral" from "sell," based on company valuation.

The analyst maintained his 12-month price target at $67. His2016 and 2017 EPS estimates are $7.15 and $7.50, respectively.

Wasserstrom said he is still cautious about the company and general-purposecard issuers based on three negative fundamental trends. He thinks that elevatedmarketing, acquisition and reward costs will constrain pre-provision net revenuegrowth; he expects provisions to increase; and he expects EPS growth to be drivenby share repurchases, which he doesn't think will improve valuation multiples.

FIG Partners LLC analyst Brian Martin raised his rating on LittleRock, Ark.-based Bank of the OzarksInc. to "outperform" from "market-perform," followingthe recent decline in its share price. The analyst noted that the company's shareprice has declined 17% since April 20, compared to a 3% decrease in the Nasdaq BankIndex.

However, the analyst lowered his price target to $46 from $47,along with his EPS estimates. Martin reduced his 2016EPS estimate to $2.45 from $2.50, and his 2017 EPS estimate to $3.00 from $3.10.

Following his recent meeting with the company management, theanalyst expects company growth to remain robust and far better than other mid- andsmall-cap banks. In addition, he believes that the company is well positioned topursue additional M&A, following the regulatory approval and closing of and deals.


Rose downgraded Winston-Salem, N.C.-based BB&T Corp. to "market perform" from "outperform"and Pittsburgh-based PNC FinancialServices Group Inc. to "underperform" from "market perform,"because he believes that upside is limited by a still-challenged macro backdrop.

The analyst maintained his 2016 and 2017 EPS estimates for bothbanks.

Rose sees more upside potential in several smaller, more energy-centricbanks, compared to the majority of larger regional bank stocks currently under coverage.However, he thinks that BB&T's lower risk profile, diverse business mix, capitalstrength, dividend yield, and better-than-peer profitability continue to be positiveattributes.

For PNC Financial, Rose thinks that the company's consensus EPSwill be at risk if the management's outlook for further rate hikes does not materializeand if its fee income does not rebound as strong as expected in the second quarter.