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Texas Capital Poised for Organic Growth, Margin Woes Linger
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On Aug 31, 2016, we issued an updated research report on Texas Capital Bancshares, Inc. (TCBI - Free Report) . The company is well positioned to grow organically. However, increasing pressure on margin, mounting costs and exposure to stressed energy sector remain near-term headwinds.
Organic growth remains a key strength for Texas Capital, depicted by its top-line growth. Revenue grew with a CAGR of 16% over the last five years (2011–2015), backed by increase in net interest income, driven by rise in average earning assets. The trend continued in the first half of 2016 as well. Further, diversified fee income base is anticipated to enhance revenue growth in the near term.
Further, Texas Capital’s has been trying to expand its business. Mortgage Correspondent Aggregation (MCA) business, launched in Sep 2015, is anticipated to bolster the company’s earnings this year and beyond. Also, MCA is expected to be incremental to ROE over the next several quarters.
Additionally, Texas Capital experienced momentum in loans (CAGR of 21%) and deposits (CAGR of nearly 28%) over the last five years (2011-2015), with the trend continuing in the first half of 2016. We believe the strong growth in loans and deposits will accelerate with continued economic recovery.
Notably, driven by these organic growth efforts, shares of Texas Capital have gained more than 6% over the past six months.
The low interest rate environment, however, continues to exert pressure on Texas Capital’s net interest margin (NIM). We believe the pressure on NIM will not ease much in the near-term, given the slow pace of increase in rates.
Further, exposure to the stressed energy sector remains a major headwind for Texas Capital. The continuing low oil prices may lead to deterioration of the credit quality of loans offered to the energy companies. This may lead to higher provisions in 2016, which may ultimately impact the company’s profitability.
Stricter regulatory landscape and rising expenses remain other concerns.
Notably, over the past 30 days, the Zacks Consensus Estimate remained unchanged at $3.00 per share and $3.57 per share for 2016 and 2017, respectively.
Currently, Texas Capital carries a Zacks Rank #3 (Hold).
Stocks to consider:
Some better-ranked stocks in the same space include Republic Bancorp, Inc. (RBCAA - Free Report) sporting a Zacks Rank #1(Strong Buy), BancFirst Corporation (BANF - Free Report) and Southwest Bancorp , both holding a Zacks Rank #2 (Buy).
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Texas Capital Poised for Organic Growth, Margin Woes Linger
On Aug 31, 2016, we issued an updated research report on Texas Capital Bancshares, Inc. (TCBI - Free Report) . The company is well positioned to grow organically. However, increasing pressure on margin, mounting costs and exposure to stressed energy sector remain near-term headwinds.
Organic growth remains a key strength for Texas Capital, depicted by its top-line growth. Revenue grew with a CAGR of 16% over the last five years (2011–2015), backed by increase in net interest income, driven by rise in average earning assets. The trend continued in the first half of 2016 as well. Further, diversified fee income base is anticipated to enhance revenue growth in the near term.
Further, Texas Capital’s has been trying to expand its business. Mortgage Correspondent Aggregation (MCA) business, launched in Sep 2015, is anticipated to bolster the company’s earnings this year and beyond. Also, MCA is expected to be incremental to ROE over the next several quarters.
Additionally, Texas Capital experienced momentum in loans (CAGR of 21%) and deposits (CAGR of nearly 28%) over the last five years (2011-2015), with the trend continuing in the first half of 2016. We believe the strong growth in loans and deposits will accelerate with continued economic recovery.
Notably, driven by these organic growth efforts, shares of Texas Capital have gained more than 6% over the past six months.
TEXAS CAP BCSHS Price
TEXAS CAP BCSHS Price | TEXAS CAP BCSHS Quote
The low interest rate environment, however, continues to exert pressure on Texas Capital’s net interest margin (NIM). We believe the pressure on NIM will not ease much in the near-term, given the slow pace of increase in rates.
Further, exposure to the stressed energy sector remains a major headwind for Texas Capital. The continuing low oil prices may lead to deterioration of the credit quality of loans offered to the energy companies. This may lead to higher provisions in 2016, which may ultimately impact the company’s profitability.
Stricter regulatory landscape and rising expenses remain other concerns.
Notably, over the past 30 days, the Zacks Consensus Estimate remained unchanged at $3.00 per share and $3.57 per share for 2016 and 2017, respectively.
Currently, Texas Capital carries a Zacks Rank #3 (Hold).
Stocks to consider:
Some better-ranked stocks in the same space include Republic Bancorp, Inc. (RBCAA - Free Report) sporting a Zacks Rank #1(Strong Buy), BancFirst Corporation (BANF - Free Report) and Southwest Bancorp , both holding a Zacks Rank #2 (Buy).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>