Citi raises Flagstar Bank price target to $13.50, keeps neutral rating

On Tuesday, Citi analysts updated their financial model for Flagstar Bank (NYSE:FLG), leading to an increase in the price target for the bank’s shares to $13.50, up from the previous $13.50, while maintaining a Neutral rating. The adjustments come after considering the bank’s quarterly results and updated guidance. According to InvestingPro data, the stock has shown remarkable momentum with a 21% return over the past week, though analyst targets currently range from $10.50 to $14.50.

The analysts at Citi have made slight tweaks to their earnings estimates, now expecting a loss of $0.26 per share in 2025, a slight improvement from the previous estimate of a $0.27 loss. For 2026, the earnings per share (EPS) forecast has been significantly raised from $0.32 to $0.73. This optimistic revision stems from a more favorable outlook on the rollover of certificate of deposit (CD) funding costs and an improved loan loss provision (LLP) forecast, indicating a belief that credit concerns will diminish by 2024. InvestingPro data reveals that six analysts have recently revised their earnings estimates upward for the upcoming period, though the company remains unprofitable with a -$3.40 EPS over the last twelve months.

In their analysis, Citi also made modest revisions to Flagstar Bank’s balance sheet projections, primarily to reflect a quicker payoff of commercial real estate (CRE) loans over the next eight quarters. Despite these changes, the analysts note a slightly smaller terminal capital base but express confidence in the bank’s potential to achieve a 9% return on tangible common equity (ROTCE) in the long term.

The raised price target and earnings estimates reflect the analysts’ improved view of the credit outlook for Flagstar Bank. The reiteration of the Neutral/High Risk rating suggests that, while the bank’s financial health may be on the upswing, there are still risks that investors should consider.

In other recent news, Flagstar Bank has seen significant financial improvements, leading to an upgrade in their stock rating from Neutral to Buy by DA Davidson, with a new price target of $14.50. This upgrade comes after a thorough review of the bank’s financials, which showed a considerable increase in Flagstar’s Common Equity Tier 1 (CET1) ratio to 11.9%, surpassing the peer median of 10.8%.

Flagstar Bank has also finalized the sale of its mortgage servicing and third-party origination business to Mr. Cooper Group Inc. for $1.3 billion in cash, expected to strengthen the bank’s CET1 capital ratio by approximately 60 basis points. This is part of Flagstar’s ongoing strategy to concentrate on its core areas of Retail Banking, Commercial and Private Banking, and Commercial Real Estate lending.

Recently, the bank announced the appointment of Christopher Higgins as Chief Information Officer and Rich Martin as the Head of Credit Review, as part of their ongoing efforts to enhance technology innovation and risk management oversight. Despite a net loss for the third quarter of 2024, the bank’s management remains confident in their strategy to rebalance the portfolio and achieve growth in future years. They are also implementing a significant expense reduction initiative expected to save $200 million annually.

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