On Wednesday, BofA Securities updated its stance on East West Bancorp (NASDAQ:EWBC), increasing the stock price target to $90 from the previous $85, while maintaining a Buy rating on the shares. The adjustment follows East West Bancorp's first-quarter earnings, which surpassed expectations with an operating earnings per share (EPS) of $2.08, notably higher than the predicted $1.98.
The bank experienced a more significant than anticipated net interest margin (NIM) compression of 14 basis points quarter-over-quarter. Still, net interest income (NII) met projections due to an expanded balance sheet. Average earning assets (AEA) grew by $2.6 billion, reaching $68.1 billion, which was above the firm's estimate of $66.9 billion.
Despite repurchasing 1.2 million shares, representing 1% of shares outstanding, East West Bancorp's Common Equity Tier 1 (CET1) capital ratio improved by 20 basis points quarter-over-quarter to 13.5%. The bank's substantial excess capital buffer, which stands at approximately 700 basis points or around $4 billion above the regulatory minimum, is seen as providing flexibility in the current unpredictable economic environment.
BofA Securities has revised its EPS estimates for fiscal years 2024 and 2025 to $8.15 and $8.40, respectively, up from the previous forecasts of $7.85 and $8.07. This revision is based on the expectation that the higher AEA will boost NII, even with a lower NIM.
Moreover, the price objective increase to $90 is driven by positive EPS revisions and a higher price-to-earnings (P/E) multiple of 12.5 times, up from 12 times, due to improved visibility of earnings.
InvestingPro Insights
Following BofA Securities' positive outlook on East West Bancorp, InvestingPro data and tips further illuminate the bank's financial landscape. East West Bancorp boasts a healthy market capitalization of $10.94 billion and an attractive P/E ratio, which currently stands at 9.48, suggesting a potentially undervalued stock.
The company's dividend yield is 2.92%, complemented by a robust dividend growth of 14.58% in the last twelve months as of Q1 2024. This is indicative of East West Bancorp's commitment to returning value to shareholders, as evidenced by their impressive track record of maintaining dividend payments for 26 consecutive years.
InvestingPro Tips highlight that East West Bancorp has raised its dividend for 6 consecutive years, reinforcing its shareholder-friendly approach. Moreover, the company has seen a large price uptick of 46.01% over the last six months, which may interest momentum investors.
These factors, coupled with the fact that analysts predict the company will be profitable this year and that 9 analysts have revised their earnings upwards for the upcoming period, suggest optimism surrounding East West Bancorp's financial performance.
To delve deeper into East West Bancorp's financials and uncover further InvestingPro Tips, interested investors can explore the comprehensive analysis available at Investing.com/pro/EWBC. There, you'll find a wealth of additional tips, with the current count standing at 7. For those considering an InvestingPro subscription, remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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