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On Wednesday, Keefe, Bruyette & Woods (KBW) adjusted its price target on Axos Financial (NYSE:AX) shares, bringing it down slightly from $91.00 to $90.00. Despite the reduction, the firm maintained a Market Perform rating on the stock. Analyst Michael Perito at KBW noted that the net interest margin (NIM) for Axos Financial held up better than KBW had anticipated, registering at 4.83%, which is 15 basis points ahead of their estimates. This performance was largely due to a decrease in deposit costs which fell by 41 basis points in total. The bank’s strong performance is reflected in its impressive 22.64% revenue growth over the last twelve months, with a return on equity of 22%.
The analyst also highlighted that management now anticipates exceeding their previous core NIM outlook of 4.25-4.35% by an additional approximately 30-35 basis points. However, Perito pointed out that this is the second consecutive quarter where there has been a significant migration to non-performing assets (NPA). While he believes the risk of losses is contained, he acknowledges that this trend could introduce some volatility into the bank’s financial reports.
The improved net interest income (NII) has led KBW to raise their earnings estimates for Axos Financial by 3-5%. Nevertheless, the slight decrease in the price target to $90.00 reflects a modest adjustment. With a current P/E ratio of 8.62x, InvestingPro analysis suggests the stock is currently undervalued. Subscribers can access 6 additional ProTips and comprehensive valuation metrics in the Pro Research Report, which provides deep-dive analysis of what really matters for smarter investing decisions. Perito further commented on the bank’s performance, stating that Axos Financial is a high-performing small to mid-cap (SMID-cap) bank that consistently delivers leading profitability, with a return on tangible common equity (ROTCE) between 15-18% forecasted for fiscal years 2025-2026.
In his analysis, Perito suggested that Axos Financial could arguably command a premium in the market. However, the recent migration to NPA, which he believes is a result of proactive risk rating rather than an indicator of potential losses, could impact the stock’s valuation multiple. With the shares trading at 10 times KBW’s fiscal year 2026 earnings estimate, the current 12% discount to the market is narrower than historical averages. Despite these concerns, the bank’s market capitalization stands at $4.13 billion, and it has demonstrated a strong five-year track record of returns. Consequently, KBW’s stance remains at Market Perform for Axos Financial.
In other recent news, Axos Financial reported strong earnings and revenue results for its fiscal second quarter, with adjusted earnings per share of $1.82 surpassing projections of $1.75, and revenue of $307.9 million outperforming forecasts of $303.63 million. Axos Financial’s net interest income rose by 22.5% year on year to $280.1 million, primarily due to increased interest income on loans and deposits at other financial institutions. The company’s book value per share also increased by 20.9% year on year to $44.17, indicating strong capital ratios.
In a recent move, Axos Financial entered into an equity distribution agreement with Keefe, Bruyette & Woods, Inc., and Raymond (NSE:RYMD) James & Associates, Inc., potentially enabling the sale of up to $150 million in common stock. This forms part of Axos Financial’s strategic financial initiatives and is based on a press release statement.
Raymond James has raised the target for Axos Financial to $80, citing the bank’s attractive price-to-earnings (P/E) valuation and potential catalysts for growth. The firm’s analysts expect the Net Interest Margin (NIM), which was reported at 4.44%, to stay above the targeted range of 4.25-4.35% for a longer period. They also highlighted Axos Financial’s significant financial flexibility, bolstered by the recent equity distribution agreement, and the possibility of growth through mergers and acquisitions.
Despite slower loan growth than anticipated, management at Axos Financial has indicated plans to introduce more competitive pricing in certain products to support higher growth projections. Credit conditions are normalizing, and the management’s proactive and conservative approach is expected to result in minimal losses, according to Raymond James. These are some of the recent developments at Axos Financial.
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