On Friday, Raymond (NS:RYMD) James made a significant adjustment to its stance on Brookline Bancorp (NASDAQ:BRKL), listed on NASDAQ as BRKL, upgrading the bank's stock from Market Perform to Strong Buy.
The financial firm has set a new price target for Brookline Bancorp at $16.00, marking a notable shift in their valuation of the company's shares. Currently trading at $11.53, BRKL appears undervalued according to InvestingPro analysis, with analyst targets ranging from $14 to $15.
The upgrade follows Brookline Bancorp's recent announcement of a strategic merger with Berkshire Hills (NYSE:BHLB), which is not covered by Raymond James. The merger is expected to establish a robust northeast banking franchise, with a substantial increase in profitability.
Analysts at Raymond James have highlighted the merger's potential to enhance earnings significantly, with an estimated 40% accretion on a GAAP basis and approximately 23% on a cash basis, according to consensus figures. This optimism is reflected in InvestingPro data showing four analysts revising their earnings estimates upward for the upcoming period.
The combined entity's profitability, coupled with a strong capital foundation, is anticipated to provide the management with increased strategic flexibility. This flexibility is expected to manifest in various forms of capital deployment, including organic growth, dividends—with an estimated payout ratio of 32%—share buybacks, and further acquisitions.
Notably, BRKL has maintained dividend payments for 27 consecutive years, currently offering a 4.68% yield. For deeper insights into BRKL's financial health and growth prospects, InvestingPro subscribers can access comprehensive analysis and additional ProTips.
The merger is seen as creating a more appealing banking franchise, which could potentially attract attention from larger banking institutions. Raymond James believes that this enhanced desirability, along with the franchise's improved financials, should lead to a re-evaluation of the combined entity at market valuations, particularly on a cash earnings per share (EPS) basis.
The analyst's commentary underscores the potential for the merger to unlock greater value for Brookline Bancorp's shareholders, with the stock already showing strong momentum through a 43% price increase over the past six months.
In other recent news, Brookline Bancorp has reported a stable financial performance for the third quarter of 2024. The company announced a net income of $20.1 million and earnings per share of $0.23, accompanied by modest loan growth and a significant increase in customer deposits. In addition, Brookline Bancorp experienced an improvement in its net interest margin and a modest growth in total assets.
The company has also approved a quarterly dividend of $0.135 per share and is currently in discussions regarding potential stock buybacks. Furthermore, it has forecasted continued improvement in net interest margin and a measured growth in its loan portfolio. However, it should be noted that nonperforming loans have seen an increase, largely due to a significant relationship financing grocery stores.
In the face of these developments, Brookline Bancorp is actively managing deposit rates to optimize net interest income, in response to shifting economic conditions. These are among the recent developments at Brookline Bancorp, which continues to focus on maintaining a measured growth strategy.
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