UMB Financial shares rated Buy by Citi, citing market share and ROTCE growth potential

On Thursday, Citi initiated coverage on UMB Financial (NASDAQ:UMBF) with a Buy rating and set a price target of $127.00. The firm highlighted the potential for the company to lead in Return on Tangible Common Equity (ROTCE) following its upcoming merger with Heartland. The analyst believes that the market is overly discounting the benefits of the merger and that the combination of the two entities presents a significant opportunity for market share growth and improved net interest margin (NIM).

The analyst pointed out that, despite the typical integration challenges that may arise during the first year post-merger, the fusion of UMB Financial's and Heartland's balance sheets could be undervalued by current market expectations. The market may not be fully recognizing the economic growth potential within the larger footprint of the combined company. Furthermore, the merger is expected to enhance UMB Financial's NIM, which has historically lagged due to a lower Loan/Average Earning Assets (AEA) mix compared to its peers.

The integration with Heartland is projected to modestly increase the AEA mix and reduce overall expenses, contributing to a stronger NIM. This financial improvement is anticipated to occur alongside a robust fee income franchise. The analyst emphasized that the market share capture, fee income improvement, and significant NIM and ROTCE upside present a compelling operational opportunity for UMB Financial.

In summary, the analyst's outlook is that UMB Financial's stock price is exceedingly attractive at its current level, considering the potential total return upside of 22%. This positive assessment is maintained even when accounting for the integration risks associated with the merger. The Buy rating and a price target of $127.00 reflect confidence in the company's post-merger performance and market position.

In other recent news, UMB Financial has been making significant strides in its business operations. The company has reported strong earnings and revenue results for the second quarter of 2024, with GAAP earnings of $101.3 million or $2.07 per share. In addition, the firm has seen an increase in net interest income and sustained growth in loans and deposits.

UMB Financial has also been focusing on growth through acquisitions, with its merger with Heartland Financial making notable progress. Shareholders have approved the issuance of additional shares and amendments to UMB's articles of incorporation, paving the way for the merger's completion. This move is expected to enhance UMB's market presence and financial strength, positioning the company for long-term growth.

Analysts from firms like Piper Sandler have adjusted their financial outlook for UMB Financial, raising the price target to $120 and maintaining an Overweight rating. They anticipate further outperformance driven by potential net interest margin improvements and superior operating leverage. The ongoing acquisition of Heartland Financial is expected to contribute to consistently above-average profitability for UMB Financial.

Finally, UMB Bank has expanded its Collateralized Loan Obligation team with the addition of industry veterans Henry Brigham, Willis Hwang, and David Knecht. This expansion aims to meet the increasing demands of the market and enhance the bank's capabilities in the sector.

InvestingPro Insights

UMB Financial's recent performance and financial metrics align well with Citi's bullish outlook. According to InvestingPro data, the company has demonstrated strong growth with a 31.22% price total return over the past six months and an impressive 69.54% return over the last year. This robust performance supports the analyst's view that the stock is attractively priced.

The company's P/E ratio of 13.5 suggests a relatively modest valuation, especially considering its growth prospects post-merger. Additionally, UMB Financial's revenue growth of 7.21% in the most recent quarter indicates ongoing business expansion, which could be further accelerated by the Heartland merger.

InvestingPro Tips highlight UMB Financial's strong dividend history, having raised its dividend for 31 consecutive years and maintained payments for 54 years. This demonstrates the company's financial stability and commitment to shareholder returns, which could be further enhanced by the improved ROTCE and NIM expected from the merger.

For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for UMB Financial, providing deeper insights into the company's financial health and market position.

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