On Thursday, Keefe, Bruyette & Woods (KBW) maintained a positive stance on Unity Bancorp (NASDAQ:UNTY), raising its price target on the company's stock from $51.00 to $55.00 while reiterating an Outperform rating.
The adjustment follows Unity Bancorp's strong fourth-quarter earnings, which exceeded expectations by $0.10 per share, largely due to a notable 22 basis points beat on net interest margin (NIM). This beat contributed to a 36 basis points margin expansion in the second half of 2024, which is anticipated to continue into 2025.
The improved net interest income (NII) outlook has led KBW analysts to increase their pre-provision net revenue (PPNR) estimates by 6% for 2025 and 3% for 2026. However, they have slightly lowered their earnings per share (EPS) projections as they have removed the near-term buybacks from their model.
This change reflects the recent rally in the group's stock. Unity Bancorp's shares surged by 4.8% today, adding to an impressive 62% return over the past year and a 45% gain in the last six months, as tracked by InvestingPro.
Unity Bancorp is expected to maintain its strong profitability with a return on assets (ROA) between 1.8% and 1.9% and a return on tangible common equity (ROTCE) around 16%, which is considered best-in-class. These figures are projected to be stable irrespective of the interest rate environment. Nonetheless, the analysts suggest that rate cuts could be beneficial for Unity Bancorp due to its limited exposure to floating-rate loans.
The new price target of $55 implies a valuation of 1.6 times the forward tangible book value (TBV) and 10 times the estimated earnings for 2026. Despite today's positive market reaction, Unity Bancorp's stock is still viewed as undervalued by KBW analysts, trading at approximately 8 times the estimated earnings for 2026.
The firm's strong quarterly performance and favorable outlook have led to the reaffirmation of the Outperform rating and the higher price target.
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