Morgan Stanley Lifts First Republic Bank’s Price Target to $180, 2021 EPS Estimates to $7.33

Morgan Stanley raised their stock price forecast on First Republic Bank to $180 from $175 and raised its earnings per share estimates to $7.33 on stronger deposit growth and faster security purchases.

In April, the bank’s first-quarter earnings came in at $1.79 per share, beating the Wall Street consensus estimates of $1.55 per share. The First Republic Bank posted revenues of $1.13 billion, up from $916.18 million seen in the same period a year ago.

“First Republic appears on track to continue its 20% annual loan growth and pristine credit quality for years to come. Raising our EPS estimates on stronger deposit growth and faster security purchases. We remain Equal-weight, however, given its lofty valuation multiple of 23.9x our 2022e EPS,” noted Ken Zerbe, equity analyst at Morgan Stanley.

“We are increasing our EPS estimates for First Republic by 1.9% in 2021 (from $7.19 to $7.33) and by 2.5% in 2022 (from $7.96 to $8.16). The main driver is stronger-than-expected other earning asset growth. Management noted that deposit growth remains quite strong in 2Q21, which could imply growth in excess of the $4.7 bil of loan growth that we expect in the quarter. For reference, core deposits were up $13 bil last quarter.”

First Republic Bank shares rose over 30% so far this year.

Fifteen analysts who offered stock ratings for First Republic Bank in the last three months forecast the average price in 12 months at $188.93 with a high forecast of $225.00 and a low forecast of $163.00.

The average price target represents a -2.94% from the last price of $194.65. Of those 15 equity analysts, six rated “Buy”, seven rated “Hold” while two rated “Sell”, according to Tipranks.

Morgan Stanley gave the bull-case scenario target price of $215 and the worst-case scenario forecast of $136.

“We expect mid-to-high teens loan growth at FRC, given its niche focus on high-net worth clients, and for it to deliver this strong growth while maintaining pristine credit quality, given its peer-leading through-the-cycle average NCO ratio of just one basis point,” Morgan Stanley’s Zerbe added.

“Its wealth management growth paired with significant investments in digital offerings to target “next gen” clients for long-term growth, could result in a stable if not slightly increasing efficiency ratio, which pressures profitability. While FRC deserves to trade at a premium valuation, we believe the shares are fully valued and see limited upside. We would wait for a relative pullback before getting more positive on the shares.”

Other equity analysts also recently updated their stock outlook. Compass point raised the target price to $223 from $215. First Republic Bank had its target price boosted by JPMorgan Chase & Co. to $225 from $210. The brokerage currently has an overweight rating on the bank’s stock.

Jefferies Financial Group reiterated an underperform rating and set a $163 price objective. Maxim Group lifted their price objective to $210 from $200 and gave the stock a buy rating.

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