On Tuesday, DA Davidson adjusted its outlook on Banc of California (NYSE:BANC), reducing the stock's price target to $17.50 from the previous $20.00, while still recommending a Buy rating for the stock. This adjustment comes after Banc of California revised its first-quarter 2024 results, acknowledging a lower benefit from discount accretion than initially reported. The revision was attributed to data onboarding issues related to the bank's loan system.
The correction of the first-quarter figures is expected to have a lasting effect, as it will decrease the anticipated accretion benefits moving forward, consequently lowering the earnings per share (EPS) forecast.
The discovery of the data onboarding issues has led to a reassessment of the bank's short-term profitability. Banc of California has indicated that the timeline for achieving its profitability goals, which include a return on assets (ROA) of approximately 1% and a return on tangible common equity (ROTCE) of around 13%, is now uncertain.
The bank now projects that it will meet these profitability targets in the fourth quarter of 2025, a delay from the previously estimated third quarter of 2025. The delay is not only due to the data issues but also factors in a higher for longer interest rate environment and increased expenses related to the Federal Deposit Insurance Corporation (FDIC).
Despite these challenges, DA Davidson maintains its Buy rating for Banc of California. The firm's analyst cited the bank's revised expectations and the impact of the ongoing issues on its financial outlook as the reasons for the adjustment in the price target. The new target reflects the recalibrated earnings projections and the path to profitability for the bank.
InvestingPro Insights
As Banc of California (NYSE:BANC) navigates through its recent challenges, real-time data from InvestingPro provides a snapshot of the company's financial health. The bank's market cap stands at $2.28 billion, indicating its significant presence in the financial sector.
Still, the P/E ratio, a key indicator of market expectations about the company's earnings, is currently negative at -2.13, reflecting investor concerns over profitability. This sentiment is further underscored by the adjusted P/E ratio for the last twelve months as of Q1 2024, which is also negative at -3.77.
InvestingPro Tips highlight that while the bank has not been profitable over the last twelve months, analysts are predicting that Banc of California will turn a profit this year. This is an important consideration for investors who are weighing the bank's future earnings potential. Additionally, despite the recent downward revisions by four analysts for the upcoming period, the anticipated sales growth for the current year provides a silver lining that may interest potential investors.
For readers interested in a deeper analysis, there are additional PRONEWS24 InvestingPro Tips available for Banc of California. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights. Currently, there are 6 more InvestingPro Tips that can help investors make more informed decisions about Banc of California.
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