On Friday, Keefe, Bruyette & Woods adjusted their outlook on VersaBank (NASDAQ:VBNK), reducing the price target to $27 from the previous $28 while keeping an Outperform rating on the stock. The change comes after the bank reported a challenging fourth fiscal quarter, which was significantly influenced by its recent U.S. bank acquisition.
The acquisition led to increased expenses and temporarily reduced the net interest margin (NIM) due to higher cash balances. The analyst from Keefe, Bruyette & Woods anticipates an improvement in VersaBank's performance going forward. However, they also expect the bank's expenses to remain high as it continues to invest in expanding its U.S. operations with the aim of driving significant growth.
The bank's efforts to grow its volume in the U.S. market are projected to take a few quarters to reach a substantial level. This slower than expected pick-up in U.S. origination activity has prompted a revision of the bank's financial estimates. Despite these adjustments, the analyst remains positive about VersaBank's long-term prospects, citing the "massive opportunity" in the U.S. market.
The analyst's statement highlighted that although the bank's near-term earnings may be impacted by the higher expense run-rate, the long-term outlook for VersaBank remains very attractive.
According to InvestingPro's comprehensive analysis, the stock appears slightly undervalued at current levels, with analysts forecasting EPS to reach $1.63 in FY2025. The slight decrease in the price target reflects these short-term challenges while reaffirming confidence in the bank's future performance. For deeper insights into VersaBank's valuation and growth prospects, investors can access the detailed Pro Research Report, available exclusively on InvestingPro.
In other recent news, VersaBank has made substantial strides in its growth strategy, highlighted by its robust financial growth and a recent U.S. acquisition. The bank's total assets have reached $4.5 billion, with an 11% year-over-year increase in its loan portfolio, and positive net income and EPS growth for the first nine months of the year. This financial growth coincides with the bank's acquisition of Stearns Bank Holdingsford in August 2024, which has expanded its reach as it is now federally chartered in both the U.S. and Canada.
VersaBank's expansion into the U.S. market and its unique digital, branchless, business-to-business model using proprietary IT infrastructure were recently highlighted by Roth/MKM, which initiated coverage of the bank's stock with a Buy rating and a price target set at $18.00. The acquisition is seen as a strategic move that allows VersaBank to leverage its proven risk-mitigated Point of Sale lending model in the U.S. market.
The bank has also made significant progress in its Receivable Purchase Program (RPP), finalizing its first post-transaction RPP partner in the U.S. market. VersaBank's proprietary software has been instrumental in its RPP value proposition. Despite some short-term pressure on net interest margin due to decreasing interest rates in Canada, VersaBank's U.S. operations could offer higher margins, as noted by analysts from Raymond (NS:RYMD) James.
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