First Hawaiian Has Little Room For Multiple Expansion

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UBS thinks
First Hawaiian IncFHB
has little room for multiple expansion, as it initiated coverage of the bank with a Neutral rating and $28 price target.

The brokerage expects First Hawaiian to report essentially flat earnings in 2017 and only 3 percent growth in 2018, with solid NII growth largely offset by higher expenses and credit costs.

UBS also pointed the company's -100 bps gap over return on tangible equity (ROTE) with its closest peer Bank of Hawaii Corporation BOH due to higher capital levels at First Hawaiian. The gap is unlikely to improve in the near term.

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"BOH's stronger returns are driven by a lower tax rate and lower capital levels, and earnings growth at FHB is unlikely to bridge the gap," analyst David Eads wrote in a note.

That said, First Hawaiian's sub-50 percent efficiency ratio is 10 percentage points better than Bank of Hawaii's on efficient branch network, comp discipline and lower than average rent expense. Apart from this, First Hawaiian's stable return profile and 2.9 percent dividend yield support a premium valuation.

Eads expects EPS of $1.55/$1.57 for 2016/2017 on revenue of $679 million/$716 million, respectively.

"The high performing operating story has allowed FHB to earn a premium valuation, but at this point we see few catalysts for further multiple expansion and more attractive opportunities for banks with lower valuations and a stronger outlook for earnings growth," Eads added.

Shares of First Hawaiian closed Friday's regular trading session at $26.57.

Full ratings data available on Benzinga Pro.

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Posted In: Analyst ColorPrice TargetInitiationAnalyst RatingsDavid EadsUBS
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