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On Wednesday, Keefe, Bruyette & Woods adjusted their outlook on VersaBank (NASDAQ:VBNK), lowering the price target from $27.00 to $22.00, while maintaining an Outperform rating on the stock. The reassessment by analyst Tim Switzer was in response to a slower-than-anticipated growth in the bank’s U.S. Point of Sale (POS) business and the impact of initial investment costs on returns.
Switzer noted that the reduction in the near-term earnings forecast, which prompted a negative market reaction on Wednesday, was primarily influenced by a challenging Canadian market rather than the U.S. POS business’s progression. He suggested that the earnings estimates could be adjusted upwards if certain economic factors, such as tariff wars and other macroeconomic issues, are resolved. InvestingPro data shows the company remains profitable with a trailing twelve-month EPS of $0.88, though it’s currently burning through cash with negative free cash flow.
Despite the near-term earnings revision, Switzer emphasized that the long-term prospects of VersaBank remain positive. He believes that the bank’s unique business model is still poised for strong future earnings. According to his analysis, VersaBank’s stock is significantly undervalued, trading at approximately 9.0 times the projected earnings for the fiscal year 2024 and 6.0 times the estimated earnings for 2026. Current market data from InvestingPro shows the stock trading at 13.5x earnings and 0.93x book value, with analysts projecting profitability this year. InvestingPro’s comprehensive analysis, including 10 additional key insights and Fair Value estimates, is available to subscribers.
Switzer’s commentary highlighted that the long-term outlook and earnings power of VersaBank have not been affected by the current market conditions. The bank’s shares are currently considered to be at a bargain, based on the future earnings multiples.
In summary, Keefe, Bruyette & Woods have adjusted their price target for VersaBank shares due to a slower growth forecast in the short term, particularly influenced by the soft Canadian market. However, the firm reaffirms its confidence in the bank’s long-term potential and continues to recommend the stock with an Outperform rating.
In other recent news, VersaBank has completed its public offering of common shares, raising approximately $75 million USD. The offering was priced at $13.25 USD per share, with a total of 5,660,378 common shares sold. Raymond (NSE:RYMD) James & Associates, Inc. acted as the sole bookrunning manager for this offering. In financial performance updates, VersaBank’s recent quarterly earnings fell short of expectations due to slower loan growth and higher noninterest expenses. Analysts at Roth/MKM downgraded the bank’s stock from Buy to Neutral, citing concerns over the slow rollout of its US Recurring Payment Program and other performance issues. Despite these challenges, Raymond James maintained an Outperform rating with an $18 price target, while Keefe, Bruyette & Woods adjusted their price target to $27, still rating the stock as Outperform. Both firms remain optimistic about VersaBank’s long-term growth prospects, particularly in the U.S. market. Additionally, VersaBank is exploring the sale of DRT Cyber, while retaining assets related to VersaVault, indicating strategic shifts in its business operations.
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