Shares of San Francisco-based commercial bank and trust company, First Republic Bank FRC , have gained more than 36% year to date, beating the Zacks categorized Banks-West industry's 29% gain. The company's consistent top-line growth, along with growth in loans and deposit balances, has given the stock this momentum, despite its entry into the market for large players.
However, the company has witnessed a slight downward trend in its earnings estimate revision for the current year. The Zacks Consensus Estimate for the stock had moved down slightly to $3.91 over the last 60 days. This is perhaps the result of analysts' concerns over it rising expenses and limited flexibility in business investments due to stricter regulatory capital requirements.
This is why the stock has just a Zacks Rank #3 (Hold). So, one should not get too excited about this stock. But given its fundamental strength and price momentum, the stock may not disappoint investors in the near term.
Looking at the fundamentals, the company has exhibited notable revenue strength over the past few years. Net interest income (NII), a primary source of income from operations for the company, has grown at a five-year CAGR (2011-2015) of 9.2%, while non-interest income demonstrated a five-year CAGR (2011-2015) of 28.8%. Given such continuing uptrend in revenue components, the company's long-term growth prospect look promising.
First Republic is backed by a solid capital position and operates in a simpler business model, which assists the company to thrive in a competitive market with large players. Additionally, the company's non-engagement in additional businesses as compared to most large banking institutions positions it well for future growth.
The company has witnessed considerable growth in loan balances, driven by increased loan origination volumes. Notably, originations recorded a four-year CAGR (2012-2015) of 8.3%. Further, the company's total deposits have grown at a five-year CAGR of 20.8% (2011-2015).
On the flip side, First Republic's operating expenses have increased at a four-year CAGR (2012-2015) of 17.4%, with the trend continuing during the first nine months of 2016. Further, they are likely to remain elevated owing to the company's investment in digital initiatives, including mobile banking applications and data analytics. This is likely to weigh on the bottom-line growth in the near term.
Also, the ongoing changes within the financial services industry and regulatory actions are expected to adversely affect revenues and increase costs of business for the company.
Some better-ranked stocks worth considering in the same space include CoBiz Financial Inc. COBZ and People's Utah Bancorp PUB , each sporting a Zacks Rank #1 (Strong Buy). Also, American River Bankshares AMRB stock carries a Zacks Rank #2 (Buy).
Over the last 60 days, the Zacks Consensus Estimate for the current year has moved up by 6.3% to 85 cents per share for CoBiz, 3.3% to $1.26 per share for People's Utah and 10.1% to 87 cents per share for American River.
You can see the complete list of today's Zacks #1 Rank stocks here .
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