Texas Capital Keeps Its Hold Rec

Texas Capital Bancshares, Inc.’s (TCBI - Analyst Report) second quarter operating results were $0.22 per share, versus $0.31 per share recorded in the prior-year period.

Even though 2Q08 average portfolio loans expanded by 21.3% year-over-year, results came in well below our expectation as significantly higher-than-expected provision for loan losses and nonperforming assets recorded for the quarter. TCBI’s ability to conduct a private placement during the current economic environment should be viewed as a positive. We maintain our Hold rating on the shares.

We have adjusted our 2008 and 2009 EPS expectation, following a review of the quarter. TCBI currently trades at 15.7x the consensus forward estimate a 5.6% discount to the small-cap peer group median. On a price-to-book basis, the shares now trade at a 10.7% discount to the small-caps, same as at the time of our last report. Current relative pricing continues to look attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate.

TCBI’s PEG ratio on this basis is 1.29, 31.8% discount to the 1.89 median for the peer group. Our new six-month target of $19.75 per share equates to 1.6x our projected book value six months out. This target price also equates to 18x of our 2008 projected earnings per share. With no dividend to supplement the return, this equates to a 7.9% expected return over that period.

Read the full analyst report on TCBI