On Monday, Citi maintained its Neutral rating on BankUnited (NYSE:BKU) with a consistent price target of $39.00. The firm's update comes as it revises its model in anticipation of third-quarter earnings.
" Our EPS estimates remain in line to slightly above consensus in 2024 and 2025 as we believe the NIM will likely start softer (vs consensus) before increasing at a fast pace due to NIB deposits," said Citi.
The analysis by Citi includes a slight reduction in near-term loan growth expectations. However, the firm expresses confidence in the credit quality of BankUnited. A noted concern is the transition from commercial real estate (CRE) lending to commercial and industrial (C&I) loans, which is projected to lead to higher loan loss provisions (LLP), potentially impacting EPS negatively.
Citi's price target of $39 for BankUnited is based on a 12% cost of equity and an 11.5% normalized return on tangible common equity (ROTCE). The price target reflects the firm's calculated valuation of the bank's stock, considering the expected financial performance and market conditions.
Other recent developments include the appointment of Beth Hosen as the new executive vice president and head of treasury management. Hosen brings over three decades of banking experience to BankUnited and will manage the company's treasury management sales, service, product, and commercial card business. Furthermore, BankUnited is considering capital deployment strategies, including potential share buybacks. However, an increase in the Allowance for Credit Losses due to risk rating migration and changes in portfolio characteristics presents further challenges for the bank.
InvestingPro Insights
Recent data from InvestingPro offers additional context to Citi's analysis of BankUnited (NYSE:BKU). The bank's market capitalization stands at $2.66 billion, with a P/E ratio of 15.72, suggesting a relatively moderate valuation compared to its earnings. This aligns with Citi's Neutral stance on the stock.
InvestingPro Tips highlight that BKU has raised its dividend for 5 consecutive years and maintained payments for 14 years, indicating a commitment to shareholder returns. This consistent dividend policy could be attractive to income-focused investors, especially given the current dividend yield of 3.26%.
The bank's financial performance shows mixed signals. While BKU has been profitable over the last twelve months with an operating income margin of 34.04%, it has experienced a revenue decline of 5.59% in the same period. This data point supports Citi's cautious outlook on near-term loan growth.
Interestingly, BKU has seen a strong price performance, with a 63.27% total return over the past year and a 29.62% return in the last six months. This positive momentum may reflect investor optimism about the bank's future prospects, including the potential for NIB deposit growth that Citi anticipates in 2025.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide a fuller picture of BankUnited's investment potential.
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