On Thursday, OceanFirst Financial Corp. (NASDAQ:OCFC) shares received an upgrade from Raymond (NS:RYMD) James, moving from an Outperform rating to a Strong Buy. Accompanying the upgrade, the firm also increased the price target for OceanFirst Financial's shares to $24.00, up from the previous target of $22.00.
The upgrade comes as the stock, currently trading at $17.94, has experienced a notable 9.26% decline over the past week, potentially creating an attractive entry point. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics.
The analyst at Raymond James highlighted the recent underperformance of OceanFirst Financial as an attractive entry point for investors, citing significant potential for earnings per share (EPS) and growth surpassing current forecasts. The firm anticipates a pivot in the bank's organic growth and net interest margin (NIM) expansion starting in 2025.
Following a period focused on capital accumulation and moderate growth metrics, OceanFirst Financial is now positioned for growth, according to the analyst. With a P/E ratio of 10.8 and a P/B ratio of 0.62, the stock trades at compelling valuations. Notably, InvestingPro data reveals the company has maintained dividend payments for 28 consecutive years, currently offering a 4.46% yield.
Investments in lenders, including those generating deposits, are expected to contribute to a return to mid-to-high single-digit balance sheet growth by the end of 2025. Moreover, the bank's net interest income (NII) and NIM are believed to have reached their lowest point, with the potential for growth and opportunities to reprice within its funding base, which could lead to reduced funding costs.
OceanFirst Financial's noninterest-bearing (NIB) deposit mix, currently at 16%, is below pre-pandemic levels. However, the bank's deposit-gathering initiatives are likely to increase the NIB mix. The analyst also noted that OceanFirst Financial has a strong track record of credit performance through various credit cycles, including a peak net charge-off (NCO) rate of 0.56% during the Global Financial Crisis (GFC).
The perceived risk within its office commercial real estate (CRE) portfolio, which represents 10.7% of loans, is deemed unwarranted due to its strong historical performance and conservative credit metrics.
In conclusion, with its robust historical credit profile and an improving growth and balance sheet outlook, Raymond James believes that OceanFirst Financial's shares are deserving of a premium trade to tangible book value (TBV). This assessment is supported by the expected EPS growth, which would result in similar price-to-earnings (P/E) multiples.
For a deeper understanding of OceanFirst Financial's valuation and prospects, investors can access comprehensive analysis and additional insights through InvestingPro, which offers detailed financial health scores and expert research reports for over 1,400 US stocks.
In other recent news, OceanFirst Financial Corp. has reported stable Q3 results, with notable net interest income of $82 million and GAAP diluted earnings per share of $0.42. This financial performance was accompanied by the announcement of the company's 111th consecutive dividend at $0.20 per share.
Despite the increase in operating expenses due to non-recurring acquisition costs, OceanFirst Financial Corp. remains optimistic about future growth, bolstered by robust loan originations of $431 million and a 1% growth in deposit balances.
Strategic acquisitions and a strong loan pipeline of $352 million also marked recent developments, along with a non-performing loans ratio of 0.28%, indicating sound asset quality. Raymond James, in its recent analysis, has upgraded OceanFirst Financial's stock target to $22.00 from the previous $20.00, maintaining an Outperform rating.
The firm's confidence in the company's potential for growth is underpinned by OceanFirst Financial's historical strength in credit management and enhancements in its balance sheet and profitability.
Analysts anticipate organic growth in Q4 and into 2025, supported by new hires in the commercial and industrial sector. Despite potential volatility from recent mortgage acquisitions, the company's strategic hires and solid financial performance highlight its resilience and dedication to shareholder returns.
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