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TowneBank stock set for breakout with 27% EPS growth on the horizon – Keefe

EditorEmilio Ghigini
Published 2024-10-02, 03:46 a/m
TOWN
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On Wednesday, Keefe, Bruyette & Woods revised its rating on TowneBank (NASDAQ: NASDAQ:TOWN), lifting the stock from Market Perform to Outperform. The firm also increased its price target to $40.00, up from the previous $35.00.

This adjustment comes alongside a positive outlook on the bank's future earnings, with 2025 earnings per share (EPS) estimates rising to $2.65, marking a 10% increase from the former $2.40 forecast. This revision is attributed to updated economic projections and the recent acquisition of Village Bank.

The firm cited several factors contributing to TowneBank's promising prospects, including an anticipated boost in net interest income (NII) and EPS growth through 2026. This optimism is based on a mix of favorable conditions such as back book repricing opportunities, reduced deposit costs, and an overall improvement in growth.

Additionally, an expected increase in mortgage revenue and benefits accruing from the Village Bank acquisition are seen as key drivers for the bank's performance.

Keefe, Bruyette & Woods has also introduced a 2026 EPS estimate of $3.22 for TowneBank. The firm's analysis suggests that the bank is in a strong position to achieve above-average growth in both NII and EPS over the next few years. The bank's valuation is also bolstered by its insurance business, which adds to its worth.

Despite TowneBank traditionally carrying a higher price-to-earnings (P/E) ratio, the firm believes the bank's stock is currently trading at an attractive valuation. With estimated EPS growth of 27% in 2025 and 22% in 2026, the stock's trading multiple is noted to be 10 times the projected 2026 earnings, which is seen as a positive indicator for potential investors.

In other recent news, TowneBank has maintained its Market Perform rating with Keefe, Bruyette & Woods, following the announcement of its $120 million acquisition of Village Bank.

This strategic move is expected to bolster TowneBank's presence in the Richmond, Virginia area, adding approximately $750 million in assets to its portfolio. The combined entity will bring TowneBank's total assets to $17.8 billion.

Analysts from Keefe, Bruyette & Woods view this acquisition as a beneficial step for TowneBank's growth trajectory, with the firm's outlook on TowneBank's stock performance remaining steady.

The merger, approved by both companies' boards, will provide Village shareholders with $80.25 per share in cash and is expected to be about 6% accretive to TowneBank's earnings per share. The deal is anticipated to close in the first half of 2025, subject to regulatory approval and Village shareholder consent.

Piper Sandler & Co. and Troutman Pepper Hamilton Sanders LLP are advising TowneBank on this transaction, while Janney Montgomery Scott and Williams Mullen (NASDAQ:MULN) are advising Village.

InvestingPro Insights

TowneBank's recent upgrade by Keefe, Bruyette & Woods is further supported by real-time data and insights from InvestingPro. The bank's market capitalization stands at $2.37 billion, with a P/E ratio of 15.89, indicating a relatively attractive valuation in line with the analyst's assessment.

InvestingPro Tips highlight TowneBank's strong dividend history, having raised its dividend for 12 consecutive years and maintained payments for 22 years. This commitment to shareholder returns aligns with the positive outlook on the bank's future earnings growth. The current dividend yield of 3.13% adds to the stock's appeal for income-focused investors.

The bank's profitability is underscored by its operating income margin of 29% for the last twelve months as of Q2 2024, reflecting efficient operations. This efficiency could support the anticipated EPS growth mentioned in the analyst report.

While the revenue growth has been slightly negative at -3.71% over the last twelve months, the strong return of 17.14% over the last three months suggests improving investor confidence, possibly due to factors like the Village Bank acquisition and expected improvements in net interest income.

For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 7 more tips available for TowneBank on the platform.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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