First Republic Bank
) have recorded a year-to-date return of 54.9%. The strong price
appreciation benefited from organic growth and considerable
capital deployment activities. However, we are not so optimistic
about these positives translating into further price appreciation
down the road as the company's top line will be under pressure.
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After observing First Republic's fundamentals following its
third-quarter 2013 earnings release, it seems that keeping the
company's shares in your portfolio would not be a bad idea.
However, we discourage further addition of First Republic's
shares to your portfolio.
Reasons behind View
Though First Republic's third-quarter 2013 operating earnings per
share of 64 cents missed the Zacks Consensus Estimate by a penny,
it was higher than 54 cents earned in the prior-year quarter.
Despite the overall sluggish economic environment, First Republic
recorded growth in deposits and loans so far in 2013. Given this
trend, both loan and deposit balances will expectedly rise
further when economic improvement gathers momentum.
We also appreciate the company's ability to increase net interest
income (NII) amid the low interest rate environment.
However, First Republic's top-line growth will likely be sluggish
in the next few quarters owing to rising expenses and net
interest margin (NIM) contraction. NIM declined 23 basis points
year over year to 3.30% in the first nine months of 2013.
Moreover, with implementation of new banking regulations, there
will be pressure on fee income.
Over the last 30 days, the Zacks Consensus Estimate for 2013 and
2014 remained unchanged at $2.61 and $2.84 per share,
respectively. Hence, First Republic now carries a Zacks Rank #3
Other Stocks to Consider
Some better-ranked financial stocks include
BofI Holding, Inc.
). All these have a Zacks Rank #1 (Strong Buy).