On Sep 25, 2013, we upgraded our long-term recommendation on SVB Financial Group (SIVB) to Outperform from Neutral. The recommendation upgrade was based on better-than-expected second-quarter 2013 results.
The Rationale Behind the Upgrade
On Jul 25, SVB Financial reported second-quarter 2013 earnings per share of $1.06, beating the Zacks Consensus Estimate of 94 cents. Results were driven by growth in revenues, partially offset by a rise in operating expenses. An improvement in capital ratios as well as loans and deposits were among the positives.
The Zacks Consensus Estimate for 2013 advanced 1.5% to $4.06 per share over the last 60 days. Further, for 2014, the Zacks Consensus Estimate increased 1.2% to $4.17 per share over the same time period. Hence, SVB Financial currently carries a Zacks Rank #2 (Buy).
SVB Financial continues to grow organically as depicted by the growth in its deposits and increase in its net interest income over the last several quarters. Moreover, the company has been continuously lowering its long-term debt level through redemptions and maturities of senior notes. Reducing debt level will aid in procuring additional finance for working capital, capital expenditures, acquisitions, debt-service requirements and other purposes. Moreover, this will result in reduced interest expenses, which in turn would improve the bottom line.
Moreover, SVB Financial’s capital ratios seem strong and well above the regulatory requirements. We expect the company to continue building capital over the next couple of years, resulting in a better financial position that will help meet the stringent capital requirements.
However, a still-low interest rate environment, sluggish economic recovery and stringent regulations are expected to slightly dampen profitability in the near term.
Other Stocks to Consider
Some other banks worth considering include BofI Holding, Inc. (BOFI), BBCN Bancorp, Inc. (BBCN) and City National Corporation (CYN). While BofI Holding carries a Zacks Rank #1 (Strong Buy), BBCN Bancorp and City National Corporation has the same Zacks Rank as SVB Financial.