Keefe upgrades Tompkins Financial stock after 94% underperformance vs peers

On Wednesday, Keefe, Bruyette & Woods (KBW) revised its rating on Tompkins (NYSE:TMP) Financial Corporation (NYSE: TMP), upgrading the stock from Market Perform to Outperform. In conjunction with the upgrade, the firm also raised its price target on Tompkins Financial to $68.00 from the previous $59.00.

The upgrade follows the publication of KBW's banking sector playbook for a lower rate environment. According to the firm, Tompkins Financial has not performed as well as its peers on the KRX index, showing a 94% underperformance since the end of March 2020.

During that period, Tompkins Financial's stock declined by 21%, while the KRX index rose by 73%. This underperformance was attributed to net interest margin (NIM) compression.

KBW's report highlighted Tompkins Financial's historically steady performance throughout economic cycles, noting its above-peer returns, best-quartile credit performance, and lower-than-peer deposit costs.

The firm suggests that with the normalization of the rate environment, Tompkins Financial is likely to experience a rebound in its NIM. This improvement is expected to lead to enhanced returns and the potential recapture of the bank's historical valuation premium.

The analyst from KBW reminded investors of the high quality of Tompkins Financial, which had previously earned a premium during the peak of pandemic uncertainty. With the anticipated changes in the rate environment, the bank is considered to be in a strong position to improve its financial performance.

This upgrade and price target adjustment reflect KBW's positive outlook on Tompkins Financial's ability to navigate the changing economic landscape and potentially regain its previous market standing. Investors are encouraged to refer to the detailed KBW report for further insights into the bank's prospects.

InvestingPro Insights

Tompkins Financial Corporation's recent upgrade by KBW aligns with several key metrics and insights from InvestingPro. The company's dividend history is particularly noteworthy, with InvestingPro Tips highlighting that Tompkins has raised its dividend for 34 consecutive years and maintained dividend payments for 51 consecutive years. This consistent dividend performance underscores the bank's financial stability, which KBW emphasized in their report on Tompkins' steady performance through economic cycles.

Additionally, InvestingPro Data shows a strong 3-month price total return of 16.19% and a 1-year price total return of 19.43%, indicating recent positive momentum that aligns with KBW's optimistic outlook. The current dividend yield of 4.35% further supports the attractiveness of the stock for income-focused investors.

However, it's important to note that InvestingPro Tips also point out that Tompkins suffers from weak gross profit margins and that its valuation implies a poor free cash flow yield. These factors may explain the historical underperformance mentioned in the KBW report and suggest areas for potential improvement as the company aims to recapture its premium valuation.

For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Tompkins Financial Corporation, providing a deeper understanding of the company's financial health and market position.

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