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On Monday, Truist Securities adjusted its outlook on shares of Texas Capital Bancshares (NASDAQ:TCBI), increasing the price target to $70 from the previous $62 while maintaining a Hold rating on the stock. The revision follows Texas Capital Bancshares' second-quarter performance, which did not meet pre-provision net revenue (PPNR) expectations.
The firm's analyst cited a downward revision of the earnings per share (EPS) forecasts for the years 2024 and 2025, now set at $3.11 and $4.00 respectively. This adjustment reflects a projected decline in net interest income (NII) due to reduced earning assets and a slower pace in loan growth, impacting both mortgage finance and other lending activities.
Despite the second-quarter shortfall, Truist Securities has slightly increased its investment banking revenue estimates after the bank's performance in this area surpassed expectations. Still, challenges in the mortgage sector are expected to continue impacting the bank's financial results throughout the year. On a positive note, growth in new customer accounts and expansion of client relationships are anticipated to contribute to balance sheet expansion, which should support NII.
Looking ahead, the bank's performance in 2025 is anticipated to be highly influenced by the direction of interest rates. Potential rate cuts by the Federal Reserve could act as a significant catalyst, potentially accelerating loan growth and increasing mortgage volumes, which could help to mitigate the effects of net interest margin (NIM) compression.
In light of these factors, Truist Securities has set a conservative adjusted revenue forecast for 2024 at 1%, which sits at the lower end of the bank management's updated guidance of low to mid-single-digit growth.
The firm's revised price target of $70 reflects a valuation of 1.0 times the next twelve months' tangible book value (NTM TBV), suggesting that the stock is currently trading at a relatively fair value given the extended timeline anticipated for the bank to meet its profitability targets and its lower return profile compared to peers.
In other recent news, Texas Capital Bancshares reported a robust second quarter in 2024. The company's total revenue rose to $267 million, marking a 4% increase, while adjusted pre-provision net revenue jumped 24% to $79 million. Additionally, net income to common shareholders saw a significant increase of 71% quarter-over-quarter. During this quarter, Texas Capital Bancshares also announced a share repurchase of $50 million.
The company's tangible common equity to tangible assets ratio was reported at a leading 9.6%, with a 21% increase in fee income quarter-over-quarter. Despite slower loan growth, the firm anticipates low to mid-single-digit revenue growth and plans to resume quarterly PPNR growth in Q4. Investment banking is expected to contribute to future growth, with a strong pipeline for deals.
These are recent developments for Texas Capital Bancshares, which continues to focus on strategic investments to improve financial performance while maintaining a conservative outlook. The company remains confident in its ability to meet its future targets and continue its momentum.
InvestingPro Insights
Recent analysis from InvestingPro has highlighted a few key metrics and trends for Texas Capital Bancshares (NASDAQ:TCBI) that are pertinent to investors considering the bank's stock. With a market capitalization of $3.04 billion and a P/E ratio of 23.81, the bank's valuation is in focus.
Adjusted for the last twelve months as of Q2 2024, the P/E ratio shows a slight decrease to 23.03, indicating a modest change in earnings expectations. Moreover, the bank's strong return over the last month, with a 13.03% price total return, reflects a positive sentiment among investors.
InvestingPro Tips also reveal that analysts have recently revised their earnings downwards for the upcoming period, which aligns with the concerns expressed by Truist Securities regarding the bank's net interest income and loan growth. Moreover, while Texas Capital Bancshares does not pay a dividend, the bank has been profitable over the last twelve months, and analysts predict it will remain profitable this year.
For investors who wish to delve deeper into these metrics and discover more InvestingPro Tips, there are additional insights available on the platform, offering a comprehensive view of TCBI's financial health and future outlook. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and access the full suite of 6 additional InvestingPro Tips to inform your investment strategy.
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