First Hawaiian Upgraded By BofA On Capital Return Potential, Impending BNP Paribas Exit

First Hawaiian Inc (NASDAQ: FHB)'s potential to return substantial capital to shareholders 

The Analyst

Bank Of America Merrill Lynch's Ebrahim Poonawala upgraded First Hawaiian from Neutral To Buy and increased the price target from $34 to $35.

The Thesis

BofA has more confidence in its EPS outlook and the timeline for a potential exit by BNP Paribas after recent investor meetings with First Hawaiian CEO Robert Harrison COO Eric Yeaman, Poonawala said in the upgrade note. (See the analyst's track record here.)

The analyst raised the earnings per share forecast to reflect a higher net interest margin outlook; the recent repurchase of 3 million shares; and expectations for additional buybacks. The 2018 EPS estimate was raised from $1.96 to $2 and the 2019 figure was raised from $2.02 to $2.16. 

First Hawaiian is expected to return 13 percent of its market cap to shareholders via dividends and buybacks in the next two years, according to BofA's projections.

Recent underperformance was due to an uncertain expense outlook as the bank shed cost synergies that came with being a part of a larger entity, Poonawala said. During the investor meetings, First Hawaiian expressed confidence in achieving its 48-percent efficiency ratio target, the analyst said.

An uncertain timeline for BNP's exit and mixed results had a negative impact on the stock, but a recent secondary offering renewed hopes that BNP could exit its stake on a quick timeline, according to BofA. 

Price Action

First Hawaiian shares were up 0.24 percent at $29.28 at the close Thursday. 

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