Attractive Relative Valuation Fetches Howard Bancorp An Upgrade

Fears of increasing inflation and higher interest rates that drove the market downward are generally beneficial for banks, a Merion Capital analyst said. 

The Analyst

Analyst Joe Gladue upgraded shares of Howard Bancorp Inc HBMD from Neutral to Outperform, as the shares have taken a bigger hit than most other banks he follows. Merion a $23 price target for the shares.

The Thesis

The upgrade of Howard Bancorp was attributed to Merion's view that the shares have a more attractive relative valuation, Gladue said in a Friday note. Following the release of fourth-quarter results just over two weeks ago, Gladue said he held a favorable view on the company's prospects, particularly as the increased scale and operating leverage provided by the 1st Mariner acquisition is realized.

Merion's $23 price target — based on a 16.5x P/E multiple applied to the projected 35-cent Q4 EPS Merion projects and annualized to $1.40 — suggests only "modest" price gain potential, the analyst said. 

The firm maintained its 2018 earnings per share estimate for Howard Bancorp at 37 cents, including $10.4 million in merger-related expenses in the first quarter. 

Stripping off the merger-related expense, Merion said its 2018 EPS estimate is 80 cents. The firm also maintained its 2019 estimate at $1.41 per share.

Given the potential 22.7-percent gain to the firm's 12-month price target, Gladue said he now believes the company's shares will outperform the market and the banking industry in general over the next year.

The Price Action

Howard Bancorp shares are up close to 3 percent over the past year.

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