The strong first-quarter numbers reported by Pinnacle Financial Partners impressed Jeff Davis sufficiently to have the Guggenheim Securities analyst significantly lift his earnings estimates for this year and next. Davis now sees Pinnacle earning $1 this year (up from 82 cents) and $1.20 in 2013 (up from 93 cents). Davis also has lifted his price target for Pinnacle (Ticker: PNFP) to $18 from $15. Pinnacle is changing hands Wednesday afternoon at $17.60 and is up about 9 percent year to date.
Our price target equates to 14x our earning power estimate and 157% of TVBPS. The median for peer growth companies we track is 14x FY12E and 186% of TBVPS. The primary downside risk to our estimates and target is deterioration in credit quality.
The core commercial and industrial loan books of U.S. banks are 11 percent larger than a year ago, says analyst Jeff Davis at Guggenheim Securities. Davis has take a scalpel to Federal Reserve statistics and found that the country's large banks are growing loans even more quickly — 16 percent from a year ago versus 6 percent for smaller institutions. That, he says, is due in large part to a pullback by a number of Europe-based banks that have their hands full with capital and funding issues.
Local analyst Kevin Campbell at Avondale Partners has become the first to formally cover shares of the new Acadia Healthcare, the behavioral health venture being built by Joey Jacobs and other former Psychiatric Solutions executives. Campbell rates the company, which recently raised almost $70 million, at 'market outperform' and has a price target of $12. The stock (Ticker: ACHC) closed Tuesday trading at $9.92.
Over at Guggenheim Securities, fellow local Jeff Davis doesn't expect Pinnacle Financial Partners executives to issue new shares to complete the payback of their TARP obligations. The bank holding company last week paid $24 million to redeem a quarter of the government's investment. "We expect the next tranche will be funded with existing cash too assuming a 25% redemption," Davis wrote in a recent investor note. "Thereafter, we look for funding to be provided by an upstream dividend from Pinnacle National Bank or a parent company debt issue."
Many banks are preparing themselves and their investors for lower margins in 2012, but Guggenheim Securities analyst Jeff Davis says Pinnacle Financial Partners should be able to hold its net interest margin around 3.5 percent. That, Davis wrote last week, will require moderate loan growth of 4 percent, which seems doable given Pinnacle's recent return to growth. Davis has lifted his EPS estimates for Pinnacle (Ticker: PNFP) but is sticking to 'neutral' rating and his $13.50 price target.
Avondale Partners analyst Mark Montagna has hiked his price target on shares of Genesco to $64, saying recent meetings with management has him even more convinced the footwear and hat retailer is primed for several more very good years. There are numerous sales growth drivers — the "known execution strength" of the Lids concept being perhaps the most powerful — but the real estate expense story also is a medium-term factor, Montagna said.
The very moderate growth in rent expense is due to 1) retail store closures boosting space availability and 2) most malls are conscious of not violating loan covenants. Store closures across the retail sector are boosting the supply of available space in the malls. As a retailer with store growth, this provides Genesco with a more equal negotiating stance than they had when the economy was far more robust.
For the second time this week, an analyst has lowered his price target for Pinnacle Financial Partners, which will report its third-quarter numbers next Tuesday. As part of a broad earnings season preview, Jeff Davis at Guggenheim Securities has tweaked his target for Pinnacle (Ticker: PNFP) to $13.50 from $14. He also has trimmed his 2011 and 2012 estimates for the Nashville-based bank holding company — and many other companies in his and his colleagues' universe — "to reflect the impact of the flatter yield curve, loan growth of 0-2% from 3-4%, and incrementally higher provision expense." Davis now expects Pinnacle to earn 65 cents next year, down from 75 cents. His 2011 outlook also has come in, to 66 cents from 70 cents. Interestingly, that has him above consensus estimates for this year (57 cents) but below it for 2012 (68 cents).
Oppenheimer analyst Michael Wiederhorn has raised his rating on HealthSpring shares to 'outperform' from 'market perform,' saying the Franklin-based insurer (as well as peer Humana) are better positioned than most because of their emphasis on the Medicare Advantage market, which is forecast to grow 10 percent next year and appears to be out of the federal budget-cutting firing line. Wiederhorn has hiked his price target on HealthSpring (Ticker: HS) to $45.
With earnings power down and demand still weak, Guggenheim Securities analyst Jeff Davis and Marty Mosby have downgraded the valuations for the lenders they cover. Among them is Pinnacle Financial Partners, which Davis now sees going to $14, down from $15. As part of a broad report, Davis wrote this morning that he's also lowering his target for Pinnacle (Ticker: PNFP) to reflect "less consideration of a potential acquisition over the next year given the subdued M&A environment." He has Pinnacle rated 'neutral.'
Guggenheim analyst Jeff Davis thinks Tennessee Commerce Bank can, as its top executives have projected, lift its capital ratios to where regulators want them by shrinking its balance sheet and injecting some parent-company cash. In a note to investors last week, he lowered his price target and earnings estimates and said he expects the Franklin company (Ticker: TNCC) will have to go back to the market for more capital "because we do not think the company can earn enough money the next few years to fund TARP redemption and meet enhanced capital requirements."
Payment of accrued but unpaid TARP and TPS dividends, which total about $2.5 million per year, will have to be funded, too [...] We also assume the issue will be put on hold until 2013, which may prove to be optimistic depending on how profitability evolves.
Over at Goldman Sachs, analyst Sloan Bohlen has upgraded Brookdale Senior Living to 'buy' from 'hold' after a two-and-a-half-week correction took the Brentwood-based company's shares from above $27 to about $25. Bohlen now sees the stock (Ticker: BKD) going to $30 — up from $28 in March — and also has raised his cash flow estimates on signs of pricing strength.
It appears 2011 will be all about gathering momentum for Pinnacle Financial Partners, which yesterday reported its third straight quarterly profit. Analyst Kevin Reynolds at Wunderlich Securities says the numbers show "an undeniable trend" for the largest bank headquartered in Nashville. Both he and Jeff Davis at Guggenheim Securities have reiterated their respective 'buy' and 'neutral' ratings. Davis says signs of loan demand are a positive and says it's likely "some market share gains occurred, too."
"Directionally, we think the company appears to be emerging from its troubles. After hearing existing and would-be PNFP borrowers in Nashville indicate to us very tight lending criteria for two years, there seems to be a tenor change."
Pinnacle shares (Ticker: PNFP) are down about 2.8 percent today. Year to date, they've risen about 10 percent.
The banking team at Guggenheim Securities has taken a look ahead to the upcoming bank earnings season and see relatively good things in store for regional players Pinnacle Financial Partners and First Horizon. David Darst, Jeff Davis and Marty Mosby expect Nashville-based Pinnacle (Ticker: PNFP) to lift its net interest margin to 3.4 percent — which would be the bank's highest since late 2007 — and post earnings per share of 10 cents versus the consensus estimate of just 3 cents. The analysts say that continued high levels of loan loss provisions will offset that improvement, at least in terms of sentiment.
They see First Horizon (Ticker: FHN) posting a profit of 8 cents per share, double the Street's estimate, but "we don’t believe this quarter’s extra profits will be perceived too favorably, since revenues should be relatively flat as a $14 million increase in mortgage banking fees is offset by a decline in net interest income."
More broadly, Darst, Davis and Mosby say investors looking for strong loan growth will be disappointed. Yes, commercial lending will lead the consumer sector into the next up cycle, but don't look for it this quarter.
We look for management commentary to note some stirrings of commercial loan growth, which may drive net growth late in the year for some, as we expect the reduction in C&D and CRE loans should run its course sometime during 2012.
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