Wednesday, FBR Capital Markets upgraded M&T Bank Corp. (MTB) shares to Market Perform from Underperform with a price target of $70. The brokerage increased its 2009 EPS estimate to $3.10 from $2.55, and its 2010 estimate to $4.10 from $2.75. The brokerage initiated its 2011 EPS estimate of $5.00.
Analyst Bob Ramsey attributed the upgrade based on an improved earnings outlook, credit trends tracking better than modeled, and improvement in MTB's TCE ratio and his expectation for continued improvement.
The analyst acknowledged that he overestimated MTB's credit losses, and given his revised loss outlook, he expects MTB would be able to generate a 15% ROTCE in 2010 and a 17% to 18% ROTCE in 2011. At this level of profitability, MTB has historically traded at 2.4x to 2.8x tangible book multiple. Accordingly, the analyst raised his 12-month price target to $70, equal to 2.5x his 2010 third quarter tangible book estimate of $28.00.
The analyst increased estimates largely to reflect lower credit costs. The analyst still considers MTB's late-cycle loan exposures, two-thirds of loans in CRE and C&I categories, uncertainty surrounding the shares owned by AIB, relatively thin capital, although improved, and premium valuation relative to peers as risks.
Currently, MTB is up $0.29 or 0.43% and trading at $67.61.
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