On Tuesday, Stephens raised the price target for Atlantic Union Bankshares (NYSE:AUB) to $46.00, up from the previous $44.00, while maintaining an Overweight rating on the stock. The firm highlights the positive aspects of Atlantic Union's all-stock transaction to acquire SASR, emphasizing its strong financial and strategic benefits.
According to the analyst, Atlantic Union Bankshares is executing the purchase at 1.28 times the tangible book value, with an expected earn-back period of two years and an estimated 8% dilution. The deal is valued at approximately 13.5 times the 2025 earnings estimate, which drops to 5.7 times when including cost savings and a commercial real estate (CRE) loan sale. Atlantic Union anticipates a 23% earnings per share accretion from the acquisition.
In conjunction with the deal, Atlantic Union successfully raised net proceeds of $386 million, which includes the overallotment option, priced at $35.50 per share. This represents roughly an 8.5% discount. The capital raise is expected to result in a pro forma Common Equity Tier 1 (CET-1) ratio of 10% and a Tangible Risk-Based Capital (TRBC) of 13.8%.
Furthermore, Atlantic Union plans to sell around $2 billion of CRE loans following the closure of the transaction. This move is aimed at reducing the company's concentration in commercial real estate loans to approximately 285%. Strategically, the acquisition is set to create a leading regional bank with less than $100 billion in assets, serving Virginia, Maryland, and Washington D.C. With $39 billion in assets post-deal, the bank is expected to achieve significant scale and scarcity value.
The valuation of Atlantic Union Bankshares is considered attractive, trading at 8.5 times the 2026 earnings estimate and 1.8 times the pro forma tangible book value. The outlook for return on assets (ROA), pre-provision net revenue (PPNR), and return on tangible common equity (ROTCE) is positive, with expected increases of 1.5%, 2.0%, and 19% respectively on the 2026 earnings per share estimates. The firm reiterates its Overweight rating on the stock.
In other recent news, Atlantic Union reported a notable increase in its financial results for the third quarter of 2024, with a net income of $73.4 million and adjusted operating earnings of $74.5 million. This represents a 32.3% rise from the previous quarter. The company also announced a strategic merger with Sandy Spring Bancorp (NASDAQ:SASR), which is projected to culminate in the creation of the largest regional bank in the Mid-Atlantic region, boasting combined assets of $39 billion.
This merger is expected to close by the third quarter of 2025. It has been designed to enhance shareholder value and service capabilities, with significant earnings accretion and community support initiatives in the pipeline. Analysts from various firms anticipate that the merger will deliver a 23% EPS accretion and a 20% internal rate of return.
InvestingPro Insights
To complement the analysis of Atlantic Union Bankshares' (NYSE:AUB) recent acquisition and capital raise, InvestingPro data provides additional context for investors. The company's P/E ratio stands at 18.12, with a price-to-book ratio of 1.19, indicating a relatively modest valuation compared to its assets. This aligns with the analyst's view of AUB's attractive valuation mentioned in the article.
AUB's revenue growth of 9.38% over the last twelve months and a more impressive 23.31% growth in the most recent quarter suggest the company is on a solid growth trajectory. This growth could be further accelerated by the strategic acquisition discussed in the article.
InvestingPro Tips highlight AUB's strong dividend history, having raised its dividend for 13 consecutive years and maintained payments for 31 years. This demonstrates the company's commitment to shareholder returns, which could be attractive to income-focused investors. The current dividend yield of 3.53% is noteworthy, especially considering the recent capital raise and acquisition plans.
It's worth noting that InvestingPro offers 6 additional tips for AUB, providing investors with a more comprehensive analysis of the company's financial health and prospects.
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