Looking Back At MB Financial's Earnings Odyssey

The better-than-expected third quarter earnings from MB Financial Inc MBFI earns it an upgrade from D.A. Davidson to Buy from Neutral. But, the brokerage cut the 2016 EPS estimates citing weaker net interest margin (NIM).

MB Financial’s core EPS came in at $0.63, which was $0.04 ahead of consensus, as strong mortgage banking drove higher than expected core non-interest income and lower than modeled core non-interest expenses.

“In our opinion, the recently-closed acquisition of American Chartered Bancorp should further strengthen MBFI's leadership position in serving Chicago's middle market businesses,” analyst Kevin Reevey wrote in a note.

Meanwhile, NPAs were 0.45 percent of total assets, down from 0.64 percent at the end of second quarter. The NCO ratio remained flat with the prior quarter at 0.09 percent.

However, the NIM was sequentially down 13bp to 3.68 percent as tight credit spreads resulted in lower yields on loans. The analyst said the ongoing competition in commercial and commercial real estate loans should continue to weigh on NIM.

As such, Reevey cut his 2016 EPS view to $2.20 from $2.29. However, he maintained his 2017 EPS estimate at $2.79 as believes the company should deliver strong core EPS growth despite near-term NIM and credit headwinds. The analyst also set a 2018 EPS target of $3.09, which represents a 10.8 percent year-over-year growth.

On the valuation front, shares of MBFI is trading at 13.3x his 2017 EPS estimates of $2.79, a discount of 7.0 percent to its peer median.

“We believe that MBFI should trade at a premium to its peer group, given its above-peer operating metrics, attractive deposit franchise and solid core operating earnings growth,” Reevey added.

At time of writing, shares of MB Financial rose 1.97 percent to $37.77, while the analyst has a target price of $43.