With Little Remaining Upside Seen For Cathay General Bancorp, BMO Downgrades

Cathay General Bancorp CATY shares have gained about 18 percent year-to-date, including a 26-percent gain over the past three months. This prompted BMO Capital Markets to revisit its rating on the shares.

The Analyst

BMO Capital Markets analyst Lana Chan downgraded shares of Cathay General Bancorp from Market Perform to Outperform.

The Thesis

Cathay General Bancorp's fundamentals remain positive but are now fully reflected in the valuation, Chan said in a Thursday note. (See Chan's track record here.) 

The company is on track to produce above-average loan growth in the range of 8 percent-plus in 2017, Chan said. Cathay General Bancorp remains a capital return story, Chan said. 

Apart from the valuation, BMO Capital Markets also predicts there are potential EPS growth headwinds in 2018 and beyond from the normalization of credit costs and interest-bearing deposit betas.

Cathay General Bancorp does not rank high among banks that could substantially benefit from tax reform and regulatory relief, Chan said. 

BMO left its 2017 and 2018 core earnings per share estimates unchanged at $2.44 and $2.65, respectively.

Within its smid-cap bank universe, BMO said it now prefers Signature Bank SBNY and BankUnited BKU.

The Price Action

The stock is inching closer to BMO's $45 price target and trading at a roughly in-line valuation on a forward P/E multiple basis, Chan said. Historically, the stock traded at a 5-7 percent discount, relative to the peer group.

At the time of writing, shares of Cathay General Bancorp were down 1.35 percent at $43.91.

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