UPDATE: J.P. Morgan Reiterates Neutral Rating, Raises PT on CapitalSource
In a report published Monday, J.P. Morgan & Co. reiterated its Neutral rating on CapitalSource (NYSE: CSE), and slightly raised its price target from $7.50 to $8.00.
J.P. Morgan noted, “Although there have been setbacks with the CSE story, such as the bank charter application being delayed, with each passing quarter it's clear that the management team at CapitalSource is not only keeping its eye on the prize, but continues to make progress. In the second quarter, the company's reversal of $347 million in deferred tax valuation allowance was two quarters earlier than expected, resulting in TBV being boosted to $7.15. With the reversal of the DTA, the tax rate was guided to move to the 41% range in the second half of 2012. Although 2Q core EPS were reported a penny above our forecast, adding a much higher tax rate over the next two quarters to the equation our EPS estimates following 2Q earnings were revised downward for 2H12, with a notable reduction to expected ROTE. While the shares appear relatively inexpensive, trading at 1.08x TBV, with the company's ROTE projected in the 6% range in 2H12 and the 6%-7% range for 2013, a near-TBV valuation appears fair with the company not expected to earn a return in excess of its cost of capital. Consequently, we maintain our Neutral rating on the stock.”
CapitalSource closed on Friday at $7.81.
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