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Sandler upgrades HarborOne to 'buy'

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Sandler upgrades HarborOne to 'buy'


* Mark Fitzgibbon of Sandler O'Neill & Partners raised HarborOne Bancorp Inc (MHC)'s stock rating to "buy" from "hold," following the deal-related stock sell-off.

HarborOne's acquisition of Coastway Bancorp Inc. is "a bold and strategic move," the analyst wrote.

Compass Point's Laurie Havener Hunsicker recently lowered HarborOne's stock rating to "neutral" from "buy," citing HarborOne's acquisition of Coastway as overly dilutive to the former's tangible book and fully converted tangible book.

Fitzgibbon, in his report, acknowledges the "sizable TBV dilution," but expects substantial EPS accretion of more than 70% in 2019 and 2020 for HarborOne. Coastway's footprint is naturally adjacent to the Brockton, Mass.-based acquirer's existing branch network, added Fitzgibbon.

HarborOne's progress in its revenue complexion shift to higher-multiple community banking from mortgage banking has been substantial, according to the analyst. The analyst noted HarborOne's mortgage banking revenues in 2017 as 29% of the company's total operating revenues, down from the previous year's 40%. Fitzgibbon expects HarborOne's mortgage banking operating revenues to further decline to 21% of the company's total operating revenues.

The analyst reduced HarborOne's price target to $20 from $20.50 and noted Sandler O'Neill & Partners involvement in the deal.

Notable reiterations

* Compass Point's Charles Peabody lowered the price target for Wells Fargo & Co.'s stock to $52.50 from $62, on the basis of lower earnings expectations. The analyst maintained Wells Fargo's stock rating as "neutral."

The analyst wrote that there is only "little improvement" in Wells Fargo's core quarterly earnings power despite the effective tax rate cut to 19% from 34%. The current year is expected to be another "transition" year for Wells Fargo as there is no earnings growth apart from the tax cut, added Peabody.

Peabody lowered the San Francisco-based company's core EPS estimate for the first-quarter of 2018 to $1.04 per share, down from the previous $1.10 per share. The EPS estimate for full-year 2018 is also down to $4.63 per share from last year's $4.78 per share.

* BOK Financial Corp. is holding off on any M&A move until Congress increases the systemically important financial institution threshold to $250 billion from $50 billion in assets, Peter Winter of Wedbush wrote.

The analyst expects BOK Financial to acquire banks within $2 billion to $10 billion assets range, if SIFI threshold is raised by Congress. The Tulsa, Okla.-based company has about $400 million in excess capital and is interested in acquiring banks that can produce additional revenues and increased market share in the company's existing footprint in Texas, Denver and Kansas City, the analyst added. BOK Financial's management said that it has identified less than 10 banks that fit the profile.

The analyst maintained a "neutral" rating on BOK Financial's stock, but increased the price target to $106 from $103.