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On Wednesday, Raymond (NSE:RYMD) James analyst David Feaster reiterated an Outperform rating and a $67.00 price target on The Bancorp (NASDAQ:TBBK) stock, which has delivered an impressive 76.86% return over the past year. Feaster addressed concerns about the company’s high short interest, particularly in relation to its Real Estate Business Lending (REBL) portfolio. Despite the skepticism from some market participants, Feaster believes the recent developments in The Bancorp’s handling of its REBL portfolio are positive. According to InvestingPro data, the stock currently trades at a P/E ratio of 12.3, suggesting potential undervaluation relative to its growth prospects.
Feaster pointed out that the additional $3.3 million investment by buyers into one of the bank’s properties, including $1.4 million of earnest money and $1.9 million in capital expenditures, strengthens the property’s position. This move could potentially mitigate losses even if the buyer decides to walk away from the deal. Feaster sees this as a testament to The Bancorp’s careful management and its commitment to achieving favorable outcomes for both the bank and its clients.
The analyst also noted that the increased earnest money and the possibility of further extensions with additional earnest consideration enhance the likelihood of the deal closing successfully. This, according to Feaster, underscores the robustness of The Bancorp’s portfolio and minimizes downside risk in the REBL book.
Looking beyond the REBL portfolio, Feaster expressed optimism for potential improvements in credit within the bank’s other holdings. With first-quarter 2025 results on the horizon, scheduled for April 24, the bank’s management believes that credit migration is plateauing and is actively working to resolve problem loans. Feaster anticipates that The Bancorp may likely sell more substandard loans during the quarter, which could further stabilize credit trends. InvestingPro analysis shows the company maintains strong financial health with a 2.65% return on assets and manageable debt levels, with a debt-to-equity ratio of just 0.16.
Feaster concluded by highlighting the strength of The Bancorp’s core Banking-as-a-Service (BaaS) business, which is projected to generate a roughly 2.8% return on assets (ROA) and approximately 31% return on average tangible common equity (ROATCE) in 2025. He suggested that the bank’s current valuation does not fully reflect the potential of its BaaS business. Despite the possibility of short-term pressure on the stock due to the ongoing sale process and the pending resolution of its 10-K filing, Feaster remains positive on the risk/reward profile of The Bancorp and anticipates an expansion in the stock’s multiple as the focus returns to its core BaaS operations. InvestingPro subscribers can access additional insights, including 11 more ProTips and a comprehensive analysis of TBBK’s financial health, which currently rates as "GREAT" with an overall score of 3.41 out of 5.
In other recent news, The Bancorp reported its fourth-quarter 2024 earnings, with an earnings per share (EPS) of $1.15, meeting analysts’ expectations. The company also reported a revenue of $148.56 million, surpassing the expected $133.01 million, driven by significant fintech fee growth. Meanwhile, Bancorp announced that its financial statements from fiscal years 2022 to 2024 should not be relied upon, pending audit approvals, and is working to file an amended Annual Report. Piper Sandler maintained its Overweight rating on Bancorp, with a price target of $68, highlighting the strong performance of the company’s payments business. Raymond James also revised its price target on Bancorp stock to $67, citing the company’s surpassing of fourth-quarter expectations and ambitious growth targets in its credit sponsorship initiative. The Bancorp’s management is optimistic about the improvement in its Real Estate Backed Loan (REBL) portfolio, which has been a concern due to elevated short interest. The company is also focusing on de-risking its loan portfolio through its credit sponsorship program, which is expected to contribute to fee income growth. These developments reflect The Bancorp’s ongoing efforts to enhance its financial performance and investor confidence.
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