UPDATE: D.A. Davidson & Co. Upgrades Heritage Financial Corporation to Buy, Raises PT Following Announcement of Merger with Washington Banking Co.

In a report published Thursday, D.A. Davidson & Co. analyst Jeff Rulis upgraded the rating on

from Neutral to Buy, and raised the price target from $16.50 to $19.00. In the report, D.A. Davidson & Co. noted, “HFWA announced a merger agreement with Washington Banking Co. (WBCO–NEUTRAL–$14.25) for $265.1 million. WBCO shareholders will receive 0.89 shares of HFWA in addition to $2.75 in cash for each share of WBCO. The approximate deal value is $265.1 million, or $16.89 per share, and is expected to close in the first half of 2014. The deal value represents 1.49x WBCO's 9/30 TBV. The combination will create a $3.3 billion asset bank with a pro forma deposit market share rank of #3 among WA-based banks. We view Heritage and Washington Banking Co. as similarly operated institutions that should exploit the SW Washington/NW Oregon footprint of HFWA along with WBCO's NW Washington presence. Separately, the banks face daunting regulatory and leverage challenges; together, these threats are minimized and a nimble, yet substantial franchise should thrive.” Heritage Financial Corporation closed on Wednesday at $15.89.