On Friday, VersaBank (NASDAQ:VBNK) stock received a new coverage initiation from Roth/MKM with a Buy rating and a price target set at $18.00.
The coverage comes after VersaBank's recent acquisition of Stearns Bank Holdingsford in August 2024, which has expanded the bank's reach as it is now federally chartered in both the United States and Canada.
The analyst from Roth/MKM highlighted the bank's unique business model, noting, "Management applies a digital, branchless, business-to-business model using proprietary IT infrastructure to address underserved banking segments in a risk-mitigated model." This approach has distinguished VersaBank from traditional financial institutions and is expected to drive its growth.
The acquisition of Stearns Bank Holdingsford is seen as a strategic move that allows VersaBank to leverage its proven risk-mitigated Point of Sale lending model in the U.S. market. The analyst expressed confidence in the bank's management and their ability to deploy VersaBank's business model to enhance leverage and deliver long-term value, particularly in the larger and more profitable U.S. market.
The $18.00 price target suggests a positive outlook on VersaBank's stock, reflecting the analyst's expectations for the bank's future performance. This target is based on the bank's potential to capitalize on its recent expansion and the deployment of its business model in new markets.
VersaBank's digital and branchless banking model, combined with its recent expansion into the U.S. market, positions it to potentially increase its market share and profitability, as indicated by the analyst's optimistic view on the stock.
In other recent news, VersaBank has made significant strides in its growth strategy, as evidenced by its latest earnings call. The bank has successfully completed a U.S. acquisition, paving the way for the expansion of its Receivable Purchase Program (RPP) into the largest point of sale financing market globally.
This move coincides with VersaBank's robust financial growth, with total assets reaching $4.5 billion, an 11% year-over-year increase in its loan portfolio, and positive net income and EPS growth for the first nine months of the year.
Despite incurring temporary financial disturbances due to acquisition-related costs and the launch of its RPP, VersaBank has maintained a record of no loan losses within its RPP model. The bank is now finalizing its first post-transaction RPP partner in the U.S. market. Notably, VersaBank's proprietary software has been instrumental in its RPP value proposition.
The bank foresees strong, sustainable growth of its loan portfolio in the coming years and expects to raise economical FDIC insured deposits to fund its RPP in the U.S. However, it anticipates short-term pressure on net interest margin due to decreasing interest rates in Canada, even as U.S. operations could offer higher margins. Analysts from Raymond James, who are closely following the bank's progress, have noted these recent developments.
InvestingPro Insights
Following the initiation of coverage by Roth/MKM, VersaBank (NASDAQ:VBNK) exhibits a mixed financial landscape. With a market capitalization of $345.18 million and a P/E ratio of 10.17, the bank is trading at a low price to earnings ratio relative to its near-term earnings growth. This could signal an undervalued stock to potential investors. Moreover, VersaBank's revenue has grown by 10.81% over the last twelve months as of Q3 2024, indicating a healthy upward trajectory in its financial performance.
Despite concerns over weak gross profit margins, VersaBank has demonstrated a strong return over the last year, with a price total return of 68.1%. Additionally, the bank has shown resilience with a significant three-month price total return of 24.65%, reflecting investor confidence in its recent strategic moves and growth potential. It's also noteworthy that analysts predict the company will be profitable this year, a sentiment that aligns with the bank being profitable over the last twelve months.
For investors seeking more in-depth analysis, there are several additional InvestingPro Tips available, including insights on cash flow and profitability. With the bank's next earnings date on November 27, 2024, these tips could provide valuable context for evaluating VersaBank's financial health and investment potential. To explore these insights further, visit the InvestingPro platform for VersaBank at https://www.investing.com/pro/VBNK.
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