Monday, Stephens upgraded Capital Bancorp (NASDAQ:CBNK) stock from Equal Weight to Overweight and raised the price target to $28 from $25. The decision follows analysis of Capital Bancorp's recent acquisition of IFHI, which the firm believes will enhance the bank's earnings profile and reduce concentration in certain loan categories.
The analyst praised the strategic acquisition for its compatibility with Capital Bancorp's existing model, which emphasizes specialized niche expertise and strong risk-adjusted returns. The addition of a niche commercial and industrial (C&I) vertical is expected to increase the Commercial Bank's earnings per share (EPS) contribution to 67%, a change that could potentially enhance the company's stock multiple.
The transaction metrics were highlighted as particularly favorable, with a price-to-earnings ratio of 8.9 times last twelve months (LTM) EPS and a price-to-tangible book value (TBV) of 1.07 times. The estimated dilution of approximately 5% is expected to be earned back within 1.8 years, and an EPS accretion of 17% is anticipated.
Despite Capital Bancorp's strong return on assets (ROA) of 1.7% and a return on tangible common equity (ROTCE) approximately 300 basis points above peers, the stock was trading at only 6.5 times the estimated 2025 EPS. The firm noted that this valuation is in line with peers, despite Capital Bancorp's superior financial metrics.
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