UPDATE: Compass Point Downgrades EverBank Financial Corp. to Sell, Lowers PT Following 2Q13 Earnings Release

In a report published Wednesday, Compass Point analyst Kevin Barker downgraded the rating on EverBank Financial Corp. EVER from Neutral to Sell, and lowered the price target from $16.00 to $14.00. In the report, Compass Point noted, “We are downgrading EVER from Neutral to Sell and lowering our price target from $16 to $14 following the 2Q13 earnings release. EVER reported a headline EPS beat, but the core operating results were weaker than expected as higher rates hurt gain on sale margins and interest income declined due to lower average loan balances. In addition, the company announced it was closing its wholesale mortgage origination platform due to declining margins and an overall decline in volumes across the industry. Meanwhile, the company may need to rely on higher cost funding in order to sustain its above average loan growth and with the reserve/loan ratio near 0.57%, provision expense is likely move higher. Taking these pressures into account, we believe it will be an uphill battle for the company to meet street EPS expectations. However, with the stock trading at ~13x FY14E EPS and mortgage originations expected to decline considerably over the next couple of quarters, we believe the stock is likely to underperform peers. With that being said, we believe management is taking the right steps for the long-term by diversifying its product mix and building out its retail origination channel. We are adjusting our FY13E operating EPS from $1.31 to $1.20 and FY14E EPS from $1.53 to $1.25. Our price target is equal to 11.2x FY14E EPS, which we believe adequately takes into account the volatility associated with mortgage banking earnings and the potential for higher provisions while giving credit to elevated multiples for mid-cap banks.” EverBank Financial Corp. closed on Tuesday at $16.26.
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Posted In: Analyst ColorDowngradesAnalyst RatingsCompass PointKevin Barker
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