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On Wednesday, Raymond (NSE:RYMD) James made a significant change to its rating for Third Coast Bancshares Inc (NASDAQ: TCBX), downgrading the stock from Outperform to Market Perform. The decision came after a period of notable performance by the company’s shares, which rose by 70.9% in 2024, outpacing the 16.7% gain of the banking sector. InvestingPro data shows an even more impressive 76.2% return over the past year, with the stock currently trading at an attractive P/E ratio of 12x. However, despite the strong past performance, analysts at Raymond James expressed concerns about the future.
The downgrade reflects a belief that Third Coast Bancshares’ growth may decelerate after years of exceeding that of its peers, with a compound annual growth rate (CAGR) of 26.4% in loan growth since the fourth quarter of 2020. The analyst noted, "We are downgrading TCBX shares from Outperform to Market Perform following its strong outperformance in 2024 and year-to-date, and where its growth trajectory is poised to slow following significantly above-peer growth in recent years."
Analysts also pointed out that while Third Coast Bancshares has maintained healthy credit metrics recently, with non-performing assets (NPA) to loans and net charge-offs (NCO) ratios at 0.70% and 0.09% respectively in the fourth quarter of 2024, there are concerns about the company’s balance sheet and underwriting practices, which have not been tested in more challenging economic conditions. With the next earnings report due on April 23, InvestingPro data reveals the company maintains a GOOD overall Financial Health Score, suggesting resilience in its operations.
The report highlighted that investor caution might increase if the focus shifts back to credit quality, especially given that Third Coast Bancshares has a lower capital level compared to its peers, with a common equity tier 1 (CET1) ratio of 8.4% versus the peer average of 12.4%.
This reevaluation by Raymond James suggests a more conservative outlook on Third Coast Bancshares, as analysts anticipate that the bank’s previous growth rates may not be sustainable in the near future. The downgrade is a reflection of the firm’s assessment of the bank’s performance and potential risks associated with its financial position.
In other recent news, Third Coast Bancshares reported fourth-quarter 2024 earnings that exceeded analyst expectations, with an earnings per share (EPS) of $0.79 against a forecast of $0.68. The company’s revenue reached $46.31 million, surpassing the anticipated $43.79 million. This performance was driven by a 16.4% increase in net interest income year-over-year. Keefe, Bruyette & Woods downgraded Third Coast Bancshares from "Outperform" to "Market Perform" while raising the price target from $40.00 to $42.00, acknowledging the company’s strong fundamentals and execution. Despite the downgrade, the bank showed significant growth in loans and deposits, with a tangible book value increase of 13.6% year-over-year. Raymond James maintained an "Outperform" rating and raised their price target to $39.00, citing the bank’s robust net interest income growth and improved core efficiency. The company also reported a lower-than-expected loan loss provision, although core noninterest expenses were higher than forecasts. Analysts at Raymond James expect continued positive operating leverage and stable net interest margins for Third Coast Bancshares.
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