Wells Fargo has updated its outlook on Banc of California (NYSE: NYSE:BANC), increasing the price target to $17.00 from the previous $16.00 while keeping an Equal Weight rating on the stock.
The adjustment comes after Banc of California reached a significant turning point, having completed all major balance sheet restructuring initiatives. This completion sets the stage for more predictable earnings per share (EPS) moving forward.
The analyst from Wells Fargo noted that despite the progress, Banc of California still has challenges ahead to meet its unchanged return on average assets (ROA) of 1.1% and return on tangible common equity (ROTCE) of 13%.
Achieving these targets will depend on both balance sheet expansion and, crucially, continued net interest income (NII) growth. The firm's transition to a more aggressive growth strategy has led to the use of next twelve months (NTM) tangible book value (TBV) as a proxy for the price target, resulting in the increase to $17.
In light of these developments, Wells Fargo has also adjusted its EPS forecasts for Banc of California for the fiscal years 2024, 2025, and 2026. The new EPS estimates stand at $0.65, $1.21, and $1.60, respectively. These figures have been revised upwards from the previous forecasts of $0.57, $1.15, and $1.54 for the corresponding years.
In other recent news, Banc of California reported a Q2 profit available to common shareholders of $20.4 million, despite an increase in provisions for potential loan defaults, particularly for office loans. Following these developments, Truist Securities revised the bank's core earnings per share estimates for 2024 and 2025. The bank also successfully completed a core system conversion and sold its CIVIC loan portfolio.
DA Davidson raised the price target for Banc of California to $19.00 from $16.50, maintaining a Buy rating. This adjustment followed a stronger-than-expected quarterly performance and the completion of the bank's merger with Pacific Western Bank. Citi initiated coverage of Banc of California with a Neutral rating, highlighting the bank's readiness for rate cuts and potential gains from the integration of the PacWest franchise.
The bank announced executive changes, including the departure of Executive Vice President and Chief Operating Officer John Sotoodeh and the replacement of outgoing Chief Accounting Officer Monica Sparks by Jeffrey Krumpoch.
Charlie Wise, senior vice president at TransUnion (NYSE:TRU), suggested that Banc of California may see a short-term benefit to their interest rate spreads following the Federal Reserve's decision to cut interest rates.
InvestingPro Insights
Recent data from InvestingPro offers additional context to Wells Fargo's analysis of Banc of California (NYSE: BANC). The company's market capitalization stands at $2.6 billion, with its stock trading near its 52-week high, reflecting investor optimism aligning with Wells Fargo's increased price target.
InvestingPro Tips highlight that analysts anticipate sales growth for Banc of California in the current year, supporting Wells Fargo's emphasis on the importance of balance sheet expansion and net interest income growth. This expectation of growth is crucial for the bank to achieve its targeted return on average assets and return on tangible common equity.
However, it's worth noting that Banc of California has not been profitable over the last twelve months, with a negative P/E ratio of -7.05. This underscores the challenges mentioned in the Wells Fargo report and explains why achieving consistent earnings is a key focus for the bank moving forward.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights beyond those mentioned here. The platform currently lists 7 additional tips for Banc of California, providing a deeper understanding of the company's financial position and prospects.
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