On Monday, Citi made an adjustment to Texas Capital Bancshares' (NASDAQ:TCBI) financial outlook by increasing the price target to $63 from $60, while keeping a Sell rating on the stock. The revision comes as the firm updates its model in anticipation of third-quarter earnings.
The analyst at Citi noted that their earnings per share (EPS) estimates for 2025 remain below the consensus, primarily due to a NIM (net interest margin) outlook that is less optimistic than the market consensus. Despite a positive trend in mortgage banking due to lower interest rates, the analyst pointed out that the asset-sensitive nature of the bank's balance sheet is a drag on the NIM expectations compared to the consensus view.
The updated model includes recent developments as disclosed in the company's 8K filing, which details a loan purchase, adjustments to the securities book, and current expense management trends. These factors have been incorporated into the revised model by Citi.
The modest increase in the target price to $63 reflects a change in the cost of equity and normalized return on tangible common equity (ROTCE). The cost of equity assumption used by the analyst remains at 10.5%, while the ROTCE has been adjusted upward from 9.5% to 10.5%. This adjustment acknowledges the strategic changes within the bank's Adjusted Earnings Assets (AEA) and an improved profitability outlook.
In other recent news, Texas Capital Bancshares has been the focus of several analyst upgrades and strategic moves. BofA Securities upgraded the bank's stock from Underperform to Buy and raised the price target to $77, citing the bank's potential for future returns and its position to benefit from potential interest rate cuts. Texas Capital Bancshares has also reported a 4% increase in total revenue to $267 million and a significant 71% quarter-over-quarter increase in net income to common shareholders.
Moreover, the bank has embarked on a series of strategic actions, such as acquiring a healthcare sector portfolio worth approximately $400 million and launching a new direct lending platform, Texas Capital Direct Lending.
Analyst firms Raymond James and DA Davidson maintained Market Perform and Neutral ratings respectively, while Truist Securities revised its outlook, increasing the price target to $70.
InvestingPro Insights
Adding to Citi's analysis, recent data from InvestingPro provides additional context for Texas Capital Bancshares' (NASDAQ:TCBI) financial position. The company's market capitalization stands at $3.26 billion, with a P/E ratio of 25.24, suggesting investors are paying a premium for current earnings. This valuation should be considered alongside the bank's financial performance.
InvestingPro Tips highlight that TCBI has been profitable over the last twelve months, which aligns with the analyst's focus on earnings potential. Moreover, the company has shown a strong return over the last three months, with InvestingPro data indicating a 15.26% price total return in that period. This recent performance may reflect market optimism about the bank's strategic changes and improved profitability outlook mentioned in Citi's analysis.
However, it's worth noting that TCBI suffers from weak gross profit margins, according to another InvestingPro Tip. This could be a factor in Citi's less optimistic NIM outlook compared to market consensus. Investors seeking a more comprehensive analysis can find 6 additional InvestingPro Tips for TCBI, offering deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.