When I last wrote about Texas Capital Bancshares (TCBI), I wrote that while I was intrigued by the transformation potential at this Texas bank, I wasn't as comfortable with the valuation. The shares shot up about 50% shortly thereafter on Street enthusiasm for CEO Holmes' initial strategic moves, but have trailed off since then - ending up more or less flat with where they were when I last wrote, and underperforming the larger group of regional banks by about 10%.
I really like what I've been hearing from the company, and not just because it has largely matched the changes I outlined in that prior piece. I agree with the overall philosophy to reduce the bank's focus on more volatile businesses and instead prioritize growing its middle-market Texas commercial lending business, and I believe this move could generate long-term core earnings growth in the double-digits. The "but" is that a lot of that is already in the share price; I'm a big advocate of the idea that successful turnarounds can go much further than you initially think, but it's going to take time to turn around and reposition TCBI.
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Texas Capital Bancshares Making Smart Moves, But The Street Anticipates The Improvements
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