On Wednesday, Piper Sandler maintained a Neutral rating and a $29.00 stock price target for United Community Banks (NYSE:UCB) (NASDAQ:UCBI), following the bank's announcement of its manufactured housing loan portfolio sale. The portfolio, valued at $318.2 million, was originally acquired through the acquisition of RBNC in January 2022. Since the third quarter of 2023, United Community Banks had ceased originating loans for this portfolio.
The transaction is expected to affect the bank's third-quarter 2024 earnings per share (EPS) by approximately $0.18. However, it is anticipated to have a slightly positive impact on the bank's regulatory capital ratios. The sale is also seen as a strategic move to lower the risk profile of the bank by removing what was considered an unnecessary distraction. This portfolio represented 11% of the year-to-date net charge-offs (NCOs) and 18% of non-performing assets (NPAs), despite comprising only 2% of the total loans.
The reinvestment of the cash proceeds from the sale is not expected to significantly differ from the losses excluded from the manufactured housing (MH) portfolio. The sale is projected to be roughly 1% dilutive to the full year 2025 EPS, depending on the timing of the reinvestment, but this is viewed as negligible when compared to the benefits of reducing risk through the sale.
The analyst believes that the sale of the portfolio will not have an immediate impact on the share price of United Community Banks. The move is interpreted as a proactive step by the bank to streamline its operations and focus on more core aspects of its business.
In other recent news, United Community Banks has announced a significant expansion of its share repurchase program. The financial institution has doubled the previous authorization from $50 million to $100 million, which corresponds to about 3% of the company's common shares outstanding.
In addition, the timeline for the repurchase program has been extended by a year, now set to expire on December 31, 2025. It's worth noting that United Community Banks has not bought back any common shares since the third quarter of 2021.
Meanwhile, Piper Sandler maintained a Neutral rating on the bank's shares, keeping the price target steady at $29.00. The firm pointed out that their current financial models do not assume any share repurchases for United Community Banks through the end of 2025. These are among the recent developments for United Community Banks.
InvestingPro Insights
Following the recent developments with United Community Banks (NASDAQ:UCBI) and the sale of its manufactured housing loan portfolio, current metrics from InvestingPro provide additional context to the bank's financial health and market valuation. As of the last twelve months ending in Q2 2024, UCBI is trading at a P/E (Price to Earnings) Ratio of 16.77, indicating a valuation that may be seen as reasonable in the banking sector. With a Price to Book ratio of 1.03, the bank's market value is in line with its book value, suggesting that the market recognizes the tangible assets backing the company's valuation.
The bank's Operating Income Margin stands at a robust 36.7%, reflecting efficient operations and a strong grip on managing expenses relative to its income. However, the Return on Assets (ROA) is at 0.72%, a metric investors often use to assess how effectively a bank is using its assets to generate earnings. Additionally, UCBI's stock price is currently at 87.73% of its 52-week high, which could signal that it is relatively well-valued in the current market.
InvestingPro Tips highlight that, despite the potential dilution to 2025 EPS due to the portfolio sale, the bank's strategic move to reduce risk is reflected in its solid operating margins. For investors seeking more in-depth analysis, InvestingPro offers additional tips—there are 5 more tips available on the platform that could provide further insights into United Community Banks' future performance and investment potential.
Lastly, InvestingPro's fair value estimate for UCBI is set at $30.25, which suggests that the stock may have limited upside potential from Piper Sandler's price target of $29.00, aligning with their neutral stance on the bank's immediate growth prospects.
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