DA Davidson has maintained a Neutral rating on Texas Capital Bancshares (NASDAQ: NASDAQ:TCBI), while increasing the stock's price target to $74 from $65.
The adjustment reflects a significant enhancement to the firm's 2025 earnings per share (EPS) forecast. The new price target represents a 10% potential increase from the stock's previous closing price on Friday at $67.55.
The analyst at DA Davidson justified the revised price target by aligning it with a 13.5 times multiple of the anticipated 2025 EPS of $5.45.
The valuation is above the median target price-to-earnings (P/E) multiple of 12.0 times for the Davidson peer group and the KRX banking index median P/E of 10.9 times. Texas Capital Bancshares is currently trading at a P/E multiple of 12.4 times.
The premium target P/E multiple is attributed to the company's current phase of growth. Texas Capital Bancshares is still in the process of optimizing its earnings as it continues to integrate new commercial banking hires and develop its fee-income businesses, which include capital markets, treasury, and wealth management services.
Despite the optimistic EPS forecast, the firm acknowledges that Texas Capital Bancshares trades below its peers in terms of price to tangible book value (P/TBV), with a ratio of 1.11 times compared to the KRX median of 1.53 times.
In other recent news, Texas Capital Bancshares has announced a series of strategic actions to enhance its financial performance. The company has acquired a healthcare sector portfolio worth approximately $400 million, restructured its balance sheet, and implemented operational improvements.
Texas Capital Bancshares has also reported robust Q2 2024 results with total revenue rising to $267 million, marking a 4% increase. The company's net income to common shareholders saw a significant 71% increase quarter-over-quarter.
Texas Capital Bancshares has launched a new direct lending platform, Texas Capital Direct Lending, appointing Tim Laczkowski as Managing Director to lead the business. The company has also extended the contract of CEO Robert C. Holmes, outlining his base salary at $1.1 million and including an annual target cash incentive opportunity.
Truist Securities has revised its outlook on shares of Texas Capital Bancshares, increasing the price target to $70 from the previous $62 while maintaining a Hold rating on the stock.
InvestingPro Insights
Following DA Davidson's neutral stance on Texas Capital Bancshares (NASDAQ: TCBI) with an enhanced price target, InvestingPro data indicates a market capitalization of $3.12 billion for the company. The stock's P/E ratio stands at 24.35, with an adjusted P/E ratio for the last twelve months as of Q2 2024 at 23.57, signaling a valuation that investors may consider when looking at earnings sustainability.
InvestingPro Tips suggest that while the company has demonstrated a strong return over the last three months, with a 15.06% total price return, it suffers from weak gross profit margins. Moreover, analysts predict that Texas Capital will be profitable this year, which aligns with the company's positive performance over the last twelve months. It's noteworthy that the company does not pay a dividend, which could influence investment decisions for income-focused shareholders.
The adjusted operating income margin of 25.2% indicates a solid profitability level that could justify the premium target P/E multiple mentioned by DA Davidson. With the next earnings date slated for October 16, 2024, and an analyst fair value target at $68, closely aligned with InvestingPro's fair value estimation of $57.77, investors will be keen to monitor Texas Capital's performance in the upcoming quarter. For those seeking a deeper dive into the company's prospects, InvestingPro offers additional tips and analytics.
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