4 Reasons Why This Analyst Turned Bullish On Fulton Financial

Fulton Financial Corp FULT recently reported strong second-quarter results thanks to better-than-expected net interest margin expansion and credit results.

The Analyst

Piper Jaffray analyst Matthew Breese upgraded Fulton Financial from Neutral to Overweight and increased the price target from $18.50 to $19.

The Thesis

Lancaster, Pennsylvania-based Fulton Financial, which is one of the more commercial- and industrial-leaning and better-funded institutions in its region, will likely see continued margin expansion despite the flat curve, Breese said in a Thursday note. (See the analyst's track record here.) 

The analyst said he expects the margin expansion to continue over the next 12-18 months.

"Specifically, for 2018-2019, we expect the NIM to equal 3.4 percent and 3.49 percent, including a rate hike in September and December of this year." 

Loan growth expectations look reasonable, especially after a reset to low-to-mid single-digit growth, Breese said. 

The analyst projects regulatory relief; Fulton has has four pending regulatory orders that the analyst expects to be resolved over the next six to 12 months.

Following the resolution of regulatory issues, Breese sees scope for modest cost savings and a strategic shift to M&A and branch openings.

"Fulton is on the cusp of being able to more aggressively go on the offensive," the analyst said. 

Fulton's valuation looks attractive, as the stock trades at 12 times estimated 2019 earnings versus 14 times for peers with similar profitability, according to Piper Jaffray. 

The profitability outlook for Fulton calls for a return on assets of 1.1-1.2 percent and a return on capital employed of 12.5-13.5 percent, Breese said. 

The Price Action

Fulton shares were up 3.54 percent at $17.55 at the close Thursday. 

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