KBW Downgrades Eagle Bancorp, But Still Likes The Stock

• The share price of Eagle Bancorp, Inc. EGBN has appreciated 55.35 percent year to date, with the shares almost at the 52 week high on December 1.
• Catherine Mealor of Keefe, Bruyette & Woods has downgraded the rating on the company from Outperform to Market Perform, while raising the price target from $48 to $55.
• The downgrade follows the year to date surge in the share price, as well as the 76 percent appreciation in valuation since May 2014.

Analyst Catherine Mealor believes that the company continues to be “a darling of the SMID-cap universe, as this beat-and-raise story continues to exceed expectations both on profitability improvement and on growth.”

Eagle Bancorp is expected to continue to report superior profitability and above average growth, irrespective of the rate environment. The company’s growth profile continues to be favorable, with potential for upside to the 14 percent growth estimate for 2016.

According to the Keefe, Bruyette & Woods report, “The efficiency story has also been impressive, with EGBN driving down the efficiency to 42 percent, and we believe further reduction to 41 percent is achievable as cost savings from two branch closures come on board in 4Q and 1Q16.”

In addition, although Eagle Bancorp’s priority at present is organic growth, the company’s higher currency would make M&A an attractive means to leverage capital.

“EGBN is a stock that can work with or without an increase in rates, as we believe it can deliver double-digit EPS and TBV growth in a flat-rate or higher-rate scenario,” Mealor added.