Cathay General Bancorp (NASDAQ: NASDAQ:CATY) has retained its Market Perform rating and $45.00 price target from Keefe, Bruyette & Woods.
The firm's position remains unchanged despite acknowledging an earnings per share (EPS) shortfall relative to both their own and consensus estimates.
The noted discrepancy was largely attributed to increased credit costs, which were driven by a significant rise in non-performing loans (NPLs), up 53% from the previous quarter.
The financial institution, however, did not remain passive in the face of these challenges. It continued to execute its share buyback strategy, an action described as opportunistic by the analyst. This suggests that the bank is actively managing its capital allocation to create value for shareholders despite the uptick in credit costs.
In light of the current financial landscape, Keefe, Bruyette & Woods has adjusted its earnings projections for Cathay General Bancorp. The firm has slightly reduced its earnings estimates for the years 2025 and 2026 by 1% and 2%, respectively. This revision is a reflection of a more conservative outlook on the bank's net interest income (NII), which is a key driver of profitability for financial institutions.
In other recent news, Cathay General Bancorp has posted a stable Q3 with a slight increase in net income and earnings per share. The net income rose to $67.5 million, marking a 1% increase from the previous quarter, while diluted earnings per share grew to $0.94.
The company also announced plans to continue its stock repurchase program, aiming to buy back approximately $35 million in stock per quarter through the first quarter of 2025, subject to market conditions.
In addition, the bank reported a marginal increase in total gross loans, largely driven by growth in commercial real estate loans. However, non-accrual loans rose to 0.84% of total loans, primarily due to a $38 million loan becoming non-accrual. Analysts from the firm also noted a slight decrease in the Tier 1 leverage capital ratio to 10.82%.
InvestingPro Insights
Cathay General Bancorp's financial landscape, as revealed by InvestingPro data, offers additional context to the analyst's perspective. The bank's P/E ratio of 10.71 suggests it may be undervalued compared to industry peers, aligning with the analyst's maintained price target of $45.00. This is further supported by InvestingPro's fair value estimate of $40.56, indicating potential upside.
An InvestingPro Tip highlights that Cathay General has maintained dividend payments for 34 consecutive years, demonstrating a commitment to shareholder returns despite the challenges noted in the article. This consistency in dividend payments, coupled with a current dividend yield of 3.05%, may appeal to income-focused investors.
However, another InvestingPro Tip warns that 3 analysts have revised their earnings downwards for the upcoming period, which corroborates the article's mention of reduced earnings estimates for 2025 and 2026. This aligns with the bank's recent revenue decline of 9.45% over the last twelve months.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Cathay General Bancorp, providing a deeper dive into the company's financial health and prospects.
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