On Friday, Wolfe Research raised its rating on M&T Bank Corporation (NYSE:MTB) stock, moving from Peer Perform to Outperform, with a new price target of $210.00. The upgrade reflects the firm's expectation that M&T Bank will continue to generate net interest margins (NIMs) that lead its peers through 2026.
The firm's positive outlook is based on M&T Bank's NIMs not being significantly impacted by underwater cash flow swaps, unlike some of its competitors.
Additionally, M&T Bank's mix of noninterest-bearing deposits is approximately 280 basis points higher than the average of the firm's coverage, which supports the expectation that the bank will maintain its NIM advantage for the next several years.
Wolfe Research projects NIMs for M&T Bank at 3.67% for 2025 and 3.72% for 2026, compared to the mid-cap bank average of 3.07% and 3.15%, respectively. This projection is part of the rationale for the bank's stock rating upgrade.
The analysis also highlights M&T Bank's astute capital management, which provides the bank with more options compared to its peers. With an excess capital position estimated to be around 8% of its market cap as of the second quarter of 2024, assuming a 10% Common Equity Tier 1 (CET1) target, M&T Bank is positioned to either fund organic growth or pursue significant share repurchases.
The firm estimates that M&T Bank could support share buybacks of $400 million in the second half of 2024, $1.2 billion in 2025, and $1.8 billion in 2026, while maintaining its pro forma CET1 ratio (excluding Accumulated Other Comprehensive Income) at approximately 11.1%, 11.0%, and 10.9%, respectively. These potential buybacks are part of the bank's capital management strategy that Wolfe Research views favorably.
In other recent news, M&T Bank has shown strong financial performance with its second-quarter 2024 earnings report revealing a GAAP earnings per share (EPS) of $3.73 and net income of $655 million, driven by both fee income and net interest income.
The bank anticipates its net interest income for the year to fall between $6.85 billion and $6.9 billion. In addition, M&T Bank plans to resume share repurchases at a pace of $200 million per quarter.
M&T Bank's stock rating was upgraded by Evercore ISI and JPMorgan (NYSE:JPM) due to expectations of improving fundamentals and a stable net interest margin. Piper Sandler also raised its price target for M&T Bank, citing strong profitability.
Despite a decrease in commercial real estate loans, M&T Bank saw growth in average loans and leases, driven primarily by commercial and industrial and consumer loans. The bank's commitment to sustainability is demonstrated by its sustainability finance loans and investments, which reached $3.1 billion.
M&T Bank has also been recognized for its services, including its mobile banking app and being named Securitization Trustee of the Year. These are recent developments reflecting the bank's ongoing strategy to enhance credit quality and reduce commercial real estate concentrations.
InvestingPro Insights
Recent data from InvestingPro adds weight to Wolfe Research's optimistic outlook on M&T Bank Corporation (NYSE:MTB). The bank's P/E ratio of 12.7 suggests it may be undervalued relative to its peers, aligning with Wolfe's upgraded price target. M&T Bank's strong financial position is further evidenced by its dividend history, with InvestingPro Tips noting that the bank "has raised its dividend for 7 consecutive years" and "has maintained dividend payments for 46 consecutive years."
The bank's profitability, as highlighted by Wolfe Research, is reinforced by InvestingPro data showing an operating income margin of 40.89% for the last twelve months as of Q2 2024. This robust margin supports the analyst's projection of superior net interest margins in the coming years.
Investors may also be encouraged by M&T Bank's recent market performance, with InvestingPro reporting a "strong return over the last three months" and a "large price uptick over the last six months." Specifically, the bank has seen a 16.48% price total return over the past three months and an impressive 26.9% return over six months.
For those seeking a deeper analysis, InvestingPro offers 7 additional tips on M&T Bank, providing further insights into the company's financial health and market position.
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