Raymond James maintains Coastal Financial at Strong Buy

On Tuesday, Raymond (NSE:RYMD) James confirmed a Strong Buy rating for Coastal Financial Corp (NASDAQ:CCB), maintaining its $88.00 price target. Currently trading at $86.73 with a market capitalization of $1.29 billion, the stock is approaching its 52-week high of $88.60. According to InvestingPro analysis, the company appears overvalued at current levels. Coastal Financial, known for its Banking as a Service (BaaS) initiatives, recorded a solid quarter that exceeded overall market expectations, although it did not meet the high earnings per share (EPS) forecast set by Raymond James. The company’s core results may be underrepresented due to unspecified expenses linked to a capital raise completed during the quarter.

The financial institution’s performance was bolstered by the signing of three new partner letters of intent (LOIs) in its BaaS endeavors and the successful sale of nearly twice as many CCBX loans compared to the previous quarter, primarily consisting of credit card receivables. This loan sale activity has somewhat obscured the true extent of reported loan growth.

Credit metrics have shown a slight increase, and net charge-offs (NCOs) were higher than anticipated. However, Raymond James views this as a validation of Coastal Financial’s minimal credit risk business model, noting that 97.9% of fourth-quarter NCOs were covered by partners. InvestingPro data shows the company maintains a GREAT Financial Health Score of 3.35, with particularly strong momentum and growth metrics despite trading at a relatively high P/E ratio of 28.24.

The discrepancy between the actual EPS and Raymond James’ projection is attributed to a 76 basis point sequential net interest margin (NIM) compression, which led to net interest income falling below expectations. On the other hand, noninterest expenses, excluding fraud enhancements, came in under forecast. The firm anticipates expense growth as Coastal Financial continues to enhance infrastructure and automation capabilities in partnership with larger national entities.

In conclusion, the quarter’s results are seen as a testament to the success of Coastal Financial’s recent initiatives. The company has demonstrated impressive growth with revenue increasing by 8.86% and a remarkable 100.19% stock return over the past year. Raymond James expects the company’s stock to respond well to these developments, which highlight the growth potential of its unique business model. InvestingPro subscribers have access to 12 additional investment tips and comprehensive financial metrics to better evaluate CCB’s growth trajectory.

In other recent news, Coastal Financial Corp has been the focus of several significant developments. The firm recently received an updated price target from Keefe, Bruyette & Woods, indicating confidence in the bank’s growth prospects. The new price target is set to $96.00, up from $92.00, following a positive evaluation of the bank’s recent capital raise. This financial boost is expected to propel growth from the bank’s robust partner pipeline and aid in achieving a dominant position within the Banking-as-a-Service sector.

In addition to the updated price target, Coastal Financial has announced the initiation of an underwritten public offering of its common stock. The bank holding company plans to provide underwriters a 30-day option to purchase up to an additional 15% of shares at the public offering price, less any underwriting discounts and commissions. Proceeds from the sale are intended for general corporate purposes, including potential investment opportunities and supporting the bank’s growth initiatives.

Keefe, Bruyette & Woods, Hovde Group, Raymond James & Associates, and Stephens Inc. are involved in the offering. The bank has filed a preliminary prospectus supplement with the U.S. Securities and Exchange Commission in relation to the offering, and a final prospectus supplement will also be filed. These are the recent developments with Coastal Financial Corp.

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