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

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

from Neutral to Buy, and raised the price target from $16.89 to $19.66. In the report, D.A. Davidson & Co. noted, “WBCO announced a merger agreement with Heritage Financial (HFWA* - BUY - $16.28) 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 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 HFWA and WBCO as similarly run institutions that will exploit the SW Washington/NW Oregon footprint of HFWA 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. To align our rating and price target with that of the acquirer, we are upgrading WBCO shares to BUY from Neutral with a $19.66 price target (up from $16.89). The price target represents 0.89x our HFWA price target (of $19) in addition to $2.75 in cash per share. In our view, we believe WBCO shareholders will benefit from the bank being combined with a peer bank rather than going it alone. We expect the transaction to close in the first half of 2014.” Washington Banking Co. closed on Thursday at $17.00.