On Thursday, Citi revised its price target for BankUnited (NYSE:BKU) shares, reducing it to $28 from the previous $30 while keeping a Neutral rating on the stock.
The adjustment follows BankUnited's first-quarter net interest income (NII) results, which were slightly below expectations. However, Citi acknowledged a more optimistic view on the bank's asset and earning asset (AEA) mix-shift plans and net interest margin (NIM) outlook for the upcoming nine months.
The report from Citi noted that while NIM expansion is anticipated to bolster pre-provision net revenue (PPNR) in the future, it may require at least another quarter before any significant impact is seen. The firm also pointed out that constraints such as expense growth and limited opportunities for additional fee income could dampen near-term operating leverage improvements.
BankUnited's credit trends were reported to align with those of industry peers. Nevertheless, the bank's shift towards commercial and industrial (C&I) loan growth is associated with higher reserve levels, which could further restrict earnings per share (EPS) upside. This strategic pivot is part of the bank's efforts to manage risk and returns.
Following a modest downturn since the start of the year, BankUnited's stock is currently trading at a 13.4% return on Citi's implied cost of equity metric. This figure is only slightly above the levels of its peers. Citi's analysis indicates that BankUnited's risk/reward balance is comparable to that of its peers, despite the stock's significant discount on tangible book value (TBV) valuation. The firm's assessment reflects a cautious but not overly pessimistic outlook on BankUnited's financial prospects.
InvestingPro Insights
In light of Citi's revised price target for BankUnited, it's worth considering the latest data and insights from InvestingPro. BankUnited's market capitalization stands at $1.88 billion, with a Price to Book ratio of 0.71 for the last twelve months as of Q1 2024, suggesting the stock might be undervalued compared to historical norms. This aligns with Citi's observation of the stock's significant discount on tangible book value.
InvestingPro Tips highlight that BankUnited has maintained dividend payments for 14 consecutive years and has raised its dividend for 4 consecutive years, with a current dividend yield of 4.61%. This consistent return to shareholders could be a point of interest for income-focused investors, especially in the context of the bank's plans to shift its asset mix, which may affect net interest margins and overall profitability.
The bank has been profitable over the last twelve months, which is a positive sign for investors looking at the company's earnings stability. However, it is important to note that 5 analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds that could impact future performance.
For readers looking to dive deeper into BankUnited's financials and prospects, additional InvestingPro Tips are available. To explore these insights and more, visit https://www.investing.com/pro/BKU and use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 additional tips listed in InvestingPro that could further inform your investment decisions.
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