First Hawaiian Strength Already Priced In, Says Citi

Keith Horowitz of Citi said the growth of First Hawaiian Inc FHB is already priced into the stock and has little room for improvement.

Horowitz, who initiated the coverage of the stock with a Neutral rating and $26 target price, terms First Hawaiian's franchise as "impressive," as the company's key market Hawaii's economic growth has been better than the national average recently. Further, the bank has strong credit quality and best-in-class efficiency ratio.

But, given First Hawaiian's lower variable assets relative to peers, the analyst said the rate increases would not drive the stock much.

"We estimate only a ~7 percent EPS benefit over 2 years for a 100 bps gradual increase in interest rates, due to the low percentage of variable rate assets on FHB's balance sheet (27 percent vs 49 percent for other regional banks in our coverage)," Horowitz wrote in a note.

Related Link: First Hawaiian Gets Bullish Commentary From Credit Suisse

Also, Horowitz sees lesser opportunity on cost improvement due to its already strong 50 percent efficiency ratio versus about 63 percent for regional banks between $10 billion–$30 billion in assets on average.

Meanwhile, Horowitz expects only modest fee revenue growth, as First Hawaiian's card business is mature and service charges were under pressure. Of note, the impact from changes to check order posting is still to come.

"As a result, we expect that EPS growth and higher returns will be somewhat of a grind from here," Horowitz noted.

The analyst's EPS estimates are $1.65 in 2016 and $1.55 in 2017.

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

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