KBW Positive On Pinnacle Financial Partners After Strong Q3, But Downgrades To Market Perform On Valuation

Keefe, Bruyette & Woods has downgraded Pinnacle Financial Partners (NASDAQ: PNFP) to Market Perform from Outperform on valuation, despite being positive on the bank’s fundamentals after a strong third quarter.

“While it is hard to downgrade the shares of what we believe is one of the best-managed banks in the nation, we think the valuation is currently rich at 16.2x 2017,” analyst Jefferson Harralson wrote in a note.

Pinnacle Financial reported an operating EPS of $0.78, up $0.01 above KBW estimate. However, Bankers Healthcare Group (BHG) contributed less in the quarter as it added only $0.12 per share versus KBW’s $0.16 per share estimate.

The analyst noted that the bank grows core earnings at a rate of more than 12 percent and sees 15 percent and 20 percent EPS accretion in 2016 and 2017. In addition, the bank’s recent M&A would help it grow in the attractive markets of Chattanooga and Memphis.

Related Link: Hilliard Lyons Downgrades Pinnacle Financial Partners, Inc.

As such, the analyst upped his 2016 EPS estimate by $0.01 to $3.04. However, he trimmed his 2017 and 2018 EPS estimates to $3.32 and $3.78 from $3.37 and $3.82, respectively, on expected lower fee contribution from BHG.

“Given PNFP's success and propensity for accretive deals, the valuation may well stay rich but we believe some headwinds exist (such as accretable yield that is 7 percent of earnings) and that PNFP shares may well just trade with the group,” Harralson added.

That said, Harralson maintained his price target at $55, implying 14.6x his 2018 EPS estimate and 2.8x TBV.

Shares of Pinnacle Financial closed Wednesday’s trading at $53.63 and at last check Thursday were down 0.88 percent at $53.16.

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