On Friday, Compass Point, a financial services firm, adjusted its outlook on New York Community Bancorp (NYSE:NYCB), revising the price target downward to $4.50 from the previous $5.00, while keeping a Neutral rating on the stock. This revision reflects a series of financial recalibrations based on recent market activities and strategic decisions made by the bank.
The firm's analyst cited the significant increase in diluted shares resulting from NYCB's capital raise as a primary factor for the adjustment. The capital infusion is expected to bolster the bank's Common Equity Tier 1 (CET1) capital above its 10% target, which should reassure investors about the bank's stability after its recent stock price volatility and growing credit concerns.
The analyst also pointed out changes to the forecasted core earnings per share (EPS) for fiscal years 2024 and 2025, adjusting them to $0.19 and $0.40, respectively, from the earlier estimates of $0.42 and $0.80. These changes are due to a higher anticipated provision, which suggests that the new management might significantly increase the reserve in the first quarter of 2024, albeit less aggressively than in the last quarter of 2023.
Furthermore, the revised estimates take into account a decrease in Net Interest Income (NII) and Net Interest Margin (NIM). This is attributed to the loss of lower-cost core deposits amid the recent stock price fluctuations and the continued upward re-pricing of deposits.
Despite the lower price target, Compass Point acknowledges the potential for upside but also recognizes increased risks to their target and core EPS estimates. The firm suggests a cautious approach in the near term, considering the uncertainties and challenges that NYCB faces.
The report concludes by emphasizing the importance of NYCB's execution in the face of these uncertainties. The new management and capital raise are seen as positive steps, but the bank is described as a "show me" story that will require time to demonstrate its capacity to address regulatory, credit, and deposit challenges effectively.
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