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Sandler upgrades Capital One; KBW downgrades First Interstate BancSystem


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Sandler upgrades Capital One; KBW downgrades First Interstate BancSystem


Sandler O'Neill & Partners LP analyst Christopher Donat upgradedMcLean, Va.-based Capital One FinancialCorp. to "buy" from "hold" and also increased thecompany price target to $88 from $73.

The analyst lowered his 2016 EPS estimate to $7.68 from $7.75,while maintaining his 2017 estimate of $8.40.

Donat noted that the company reported first-quarter GAAP EPSof $1.84, below the analyst's and Street consensus estimates, mainly driven by a$1.53 billion provision, which was $299 million above the analyst's expectations.

However, the analyst noted some favorable trends in the company'sfinancial results as well. The company reported net interest income of $5.06 billion,which beat his estimate by $78 million, mainly because the company's NIM was 6.75%compared to his forecast of 6.66%. Secondly, the company's net interchange feeswere $596 million, $76 million above his estimate, partly on a better yield on paymentsvolume, and Capital One reported non-interest expenses of $3.22 billion, $27 millionless than the analyst's estimate.


Keefe Bruyette & Woods Inc. analyst Jacquelynne Chimera downgradedBillings, Mont.-based First InterstateBancSystem Inc. to "market perform" from "outperform,"with a target price of $30.

The analyst also lowered her 2016 EPS estimate to $2.02 from$2.06, while she maintained her 2017 EPS estimate of $2.20.

Chimera believes that the company has limited upside to her targetprice, which remained unchanged at $30. "Our revised rating is purely a relativevaluation call, and is in no way related to the company's energy exposure, whichis modest and carries a meaningful reserve against it," she wrote in a researchnote.

In addition, the analyst noted that the company reported EPSof 45 cents, below consensus and the analyst's estimate. She highlighted that thecompany missed the analyst's estimate because of higher seasonality in fees anda higher provision expense given weakness in the energy portfolio, which is 1.3%of loans.

FIG Partners LLC analyst John Rodis downgraded Davenport, Fla.-basedCenterState Banks "market-perform" from "outperform," based on valuation, butincreased his 12-month price target to $17 from $16.

Meanwhile, the analyst lowered his 2016 EPS estimate to 77 centsfrom $1.15. Rodis noted that he reduced his estimates based on the company's first-quarterreported results and a 6-cent reduction in total to the last three quarters, drivenby somewhat lower spread income versus prior estimates, partially offset by lowercore operating expenses at legacy CenterState Banks.

The analyst maintained his 2017 EPS estimate of $1.27. Rodisreduced his net interest income forecast for 2017, which was offset by lower expenses.

The analyst wrote that the company's target price implies a potentialupside of 6% to 7%, based on the company's recent share price. His target pricealso implies that the company shares will trade at approximately 13.5x his 2017EPS estimate and approximately 185% of forward tangible book value, as comparedto the current FIG Bank peer group medians of approximately 13.8x and 178%, respectively.

Rodis also lowered his rating for Houston-based to "market-perform"from "outperform," based on valuation.

However, he increased his 12-month price target to $55 from $47,given the general increase in bank stock valuations and higher commodities prices.

The analyst lowered his 2016 EPS estimates to $3.83 from $3.95,and 2017 EPS estimate to $4.03 from $4.15, based on higher provisioning, as comparedto his prior estimates.

In addition, he highlighted that the company's share price increasedapproximately 40% since January and now appears more fairly valued given the currentmacro headwinds, including energy concerns.