On Monday, Morgan Stanley upgraded Cadence BanCorp (NYSE:CADE) stock from Equalweight to Overweight, while also raising its price target to $39.00 from $36.00. The upgrade is based on the firm's analysis that Cadence is well positioned for the anticipated Federal Reserve rate cut cycle.
The analyst at Morgan Stanley forecasts a net interest margin (NIM) expansion for Cadence of 29 basis points (bps) by the fourth quarter of 2025, which is more optimistic than the consensus estimate of 17 bps.
The analyst believes that Cadence's NIM expansion will surpass both consensus estimates and the performance of its peers. The expected expansion of 29 bps by the end of 2025, compared to the second quarter of 2024, is significantly higher than the median expansion of 14 bps projected for other companies covered by the analyst.
This outlook relies on the assumption that Cadence will benefit from lower deposit rates, limited repricing of floating rate loans, and cash matched by short-term borrowings in a declining rate environment.
The firm's assessment suggests that Cadence has a higher sensitivity to liabilities than is currently reflected in consensus estimates. This sensitivity is seen as an advantage as it positions the bank to potentially experience greater benefits from the Fed's rate cuts. The anticipated upward revisions of consensus NIM and net interest income (NII) estimates throughout the rate cutting cycle also contribute to the positive outlook for Cadence.
Morgan Stanley's upgrade indicates a confidence in Cadence's financial strategy and its ability to navigate the changing interest rate landscape effectively. The new price target reflects the firm's revised expectations for the bank's financial performance over the next couple of years.
The positive assessment by Morgan Stanley is likely to be of interest to investors as they consider the potential impact of the upcoming Fed rate cuts on financial institutions like Cadence BanCorp.
In other recent news, Cadence Bancorp reported a robust financial performance in the second quarter of 2024, recording a GAAP net income of $135.1 million and an adjusted net income from continuing operations of $127.9 million. The bank also marked a notable loan growth of $430 million, offsetting a slight decrease in total deposits.
Following these results, Citi, RBC Capital Markets, DA Davidson, and Truist Securities have all revised their price targets for Cadence Bancorp. Citi and RBC Capital Markets both raised their targets to $35, maintaining a neutral and sector perform rating respectively.
Meanwhile, DA Davidson and Truist Securities increased their targets to $39 and $38 respectively, citing the bank's strong earnings and revenue results. These adjustments reflect recent developments and the bank's ability to manage costs effectively while maintaining strong core operations.
InvestingPro Insights
Adding to Morgan Stanley's optimistic outlook on Cadence BanCorp (NYSE:CADE), recent data from InvestingPro provides further context for investors. The company's P/E ratio of 9.58 suggests that the stock may be undervalued relative to its earnings, potentially supporting Morgan Stanley's decision to upgrade the stock. This is particularly interesting given the bank's strong dividend history, with InvestingPro Tips highlighting that Cadence has raised its dividend for 11 consecutive years and maintained payments for 40 years.
The company's financial health appears robust, with InvestingPro data showing a market capitalization of $5.71 billion and a revenue of $1.22 billion over the last twelve months as of Q2 2024. An InvestingPro Tip indicates that net income is expected to grow this year, aligning with Morgan Stanley's positive outlook on the bank's performance during the anticipated rate cut cycle.
Investors should note that Cadence's dividend yield stands at 3.2%, which could be attractive in a potentially lower interest rate environment. The stock has also shown strong performance, with a one-year price total return of 52.56%, reflecting investor confidence in the company's strategy and market position.
For those seeking a deeper analysis, InvestingPro offers 10 additional tips for Cadence BanCorp, providing a more comprehensive view of the company's financial position and prospects.
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