JPMorgan upgrades Union Bank stock on strong first quarter, political deposit growth

Tuesday, union bank (NASDAQ: ) J.P. Morgan analysts gave the stock a positive review, raising the price target to $31.50 from $29.50. The bank's overweight rating remains unchanged.

The adjustment comes after Amalgamated Bank reported strong first-quarter 2024 results, with core earnings per share (EPS) of $0.83, beating expectations. The good performance was attributed to lower provisions and pre-tax provision (PTPP) revenue slightly above initial forecasts.

The bank's quarter was marked by a sharp rise in deposits that beat expectations and an improved outlook for net interest income (NII) and PTPP revenue in 2024.

One notable development this season has been the influx of political deposits, which reached about $1.5 billion in April. The surge in deposits allowed the bank to reduce higher-cost borrowing and brokered certificates of deposit (CDs) by about $250 million.

Amalgamated has traditionally relied on Federal Home Loan Bank (FHLB) borrowings to offset political deposit outflows, which are expected to occur later in the second and third quarters of 2024 as political campaign spending increases.

This year, however, the bank expects to rely less on wholesale funding due to strong growth in political and other niche deposit areas such as social advocacy, unions and nonprofits.

While NIM is expected to decline in the fourth quarter of 2024, JPMorgan expects NIM to remain stable or improve through the remainder of the year and 2025. Repricing earnings support. Additionally, Amalgamated's balance sheet growth is expected to outperform its peers, giving it the potential to deliver superior top and bottom line growth in 2024.

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Credit trends within Amalgamated's multifamily portfolio remain stable, with no nonperforming or past-due loans, and the multifamily loan portfolio is well positioned in terms of loan-to-value (LTV) ratios and debt service coverage ratios (DSCR).

Loans coming due in the first quarter were rolled over without significant concessions, easing concerns about potential credit problems in the bank's rent-regulated multifamily portfolio.

In terms of valuation, the implied cost of equity for Amalgamated shares in 2024 is 14%, compared with the industry average cost of equity of 11%. The bank is positioned to capitalize on its niche and drive key growth metrics, which could narrow current valuation discounts, JPMorgan analysis said. Maintaining an Overweight rating reflects this potential.

Investment Professional Insights

InvestingPro's current indicators offer a broader perspective on Union Bank's financial health following a positive assessment from JPMorgan. The bank has a market capitalization of $742.01 million and a P/E ratio of 7.93, which indicates its earnings relative to its share price. Notably, the bank returned a whopping 52.53% last year, highlighting the strong performance highlighted by analysts. In addition to the solid earnings per share (EPS) reported in the last 12 months, Union Bank's share price has risen an impressive 34.55% in the last 6 months, demonstrating its strong growth trajectory.

Analysts have upgraded earnings for the period ahead, reflecting optimism about the bank's future profitability, InvestingPro Tips showed. Furthermore, despite the bank's lower gross margins, analysts predict the bank will turn a profit this year, with profitability over the past twelve months supporting that sentiment. For readers who wish to delve deeper into United Bank's potential, there are additional InvestingPro Tips available, providing a comprehensive analysis of the company's prospects.Use coupon code PRONEWS24 Get an additional 10% off with an annual or annual Pro and Pro+ subscription and gain access to these valuable insights.

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