On Jan 7, 2014, we reaffirmed our Neutral recommendation on
). Though the company reported better-than-expected third-quarter
results, we remain concerned about its compressed net interest
margin as well as exposure to disadvantageous residential loans
and an increasingly competitive market.
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On Oct 22, BankUnited reported third-quarter 2013 earnings per
share of 52 cents, comfortably beating the Zacks Consensus
Estimate of 46 cents. Results were primarily aided by growth in
net interest income, partially offset by decline in non-interest
income and higher operating expenses.
The Zacks Consensus Estimate for 2013 advanced nearly 1% to $1.95
per share over the last 60 days. However, for 2014, the Zacks
Consensus Estimate decreased 1.6% to $1.81 per share over the
same time period. As a result, BankUnited now has a Zacks Rank #4
Given BankUnited's strong capital and balance sheet levels, the
company is well-positioned to expand organically as well as
through acquisitions. The company is also a lucrative option for
yield-seeking investors as since its inception, in 2009,
BankUnited has hiked its dividend twice and maintained the
Moreover, the company is trying to reduce exposure to risky
residential loans and provide impetus to commercial loans, which
will lead to a steady source of income. As of Sep 30, 2013,
commercial loans were 60.0% of total loans and 71.7% of new
However, rising expenses is a major challenge for BankUnited.
Going forward, we expect costs to remain high due to the
company's continuous expansion in the New York market.
Further, we are skeptical about BankUnited's geographic
concentration in the highly competitive Florida region. Big
Bank of America Corp.
JPMorgan Chase & Co.
), Regions Financial Corp., SunTrust Banks, Inc. and Wells Fargo
& Company operate in the region through a huge branch
network. Hence, expansion in the region as a profitable company
will be quite challenging for BankUnited.