GBNK: Lowering Rating To “Market-Perform” On Price Appreciation; No Change To Estimates Or $13.50 Target

GBNK Update 9.27.13

We are lowering our investment rating on GBNK-Guaranty Bancorp to “Market-Perform” from “Outperform” due solely to stock price appreciation. Based on last night’s closing price of $13.56 the shares are now trading right in-line with our $13.50 price target.

Since upgrading the shares on August 21st, GBNK shares are up 17.9% while the NASDAQ Bank Index (BANK/2319.62) and KBW Bank Index (BKX/62.74) are down 1.4% and 2.4%, respectively.

On a YTD-basis, GBNK shares are up ~ 39% vs. a median increase of ~ 28% for our FIG Bank peer group and a 20-25% increase for the S&P, KBW and NASDAQ Bank Indexes.

On an earnings basis GBNK shares are now trading at 16.0x our FY15 EPS estimate which is a premium to our FIG Bank peer group median of 13.0x. And on a tangible book value basis (TBV as of June 30th) the shares are trading at 164% which is basically in-line with the peer group median of 168%.

Fundamentally, nothing has changed for GBNK and we expect the Company to report another solid quarter when they release 3Q13 results in mid-to-late October. Our 3Q13 EPS estimate is $0.17 vs. the consensus mean estimate of $0.18 and 2Q13 results of $0.18.

Our 3Q13 estimate includes the following assumptions: (1) modest margin compression with the NIM in the 3.65-3.70% range; (2) core loan growth of ~ 3.0% Q/Q vs. 5.1% in 2Q13 reflecting some seasonal slowdown during the summer months; (3) a provision for loan losses of zero which is the same as the previous two quarters; and (4) operating expenses of ~ $14 million up slightly from $13.9 million in 2Q13 with an Efficiency Ratio in the low 70s (70-72%).

Earnings estimates: There is no change to our full-year EPS estimates. Accordingly, our FY13, FY14 and FY15 EPS estimates remain unchanged at $0.64, $0.74 and $0.85, respectively.