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On Apr 3, 2013, we initiated our coverage on BankUnited, Inc. (BKU - Analyst Report) with a Neutral recommendation. The recommendation is based on its organic and inorganic growth prospects, robust liquidity and meaningful capital deployment actions.

However, rising expenses, significant margin pressures and exposure to risky residential loans remain the major causes of concern for this Zacks Rank #3 (Hold) stock.

Why the Neutral Stance?

Over the past 60 days, estimates revisions have remained unchanged  for 2013. However, estimates for 2014 have slightly improved over the same period.

The Zacks Consensus Estimate for first-quarter 2013 is pegged at 44 cents. The Zacks Earnings ESP (Read: Zacks Earnings ESP: A Better Method) for the company is 4.55% for the first quarter. This, along with its Zacks Rank #3, makes it likely for the company to report a positive earnings surprise.

BankUnited has strong capital ratios well above the regulatory requirements and it is anticipated that the company will continue building capital with the help of its earnings in order to meet the heightened capital requirements. Given BankUnited’s strong capital and balance sheet levels, the company is well positioned to expand organically as well as through acquisitions.

In addition, the company has been meticulously enhancing shareholders’ value through dividend payments. We believe such capital deployment activities will generate ample interest among the investors about the stock.

Yet, elevated expenses mainly due to huge compensation costs remain a major cause of concern for BankUnited. Further, as the low-rate environment is not expected to improve in the near future, we anticipate the company to experience significant margin pressures in the near-to-mid term. In addition, BankUnited’s extensive exposure to residential mortgage loans keeps us wary.

Other Stocks to Consider

Other banking stocks that are performing better than BankUnited include Citigroup Inc. (C - Analyst Report), JPMorgan Chase & Co. (JPM - Analyst Report) and Northern Trust Corporation (NTRS - Analyst Report). All these banks carry a Zacks Rank #2 (Buy).

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