5 Reasons to Add First Republic (FRC) Stock to Your Portfolio - Zacks Investment Research - Financial Daily News Site

5 Reasons to Add First Republic (FRC) Stock to Your Portfolio – Zacks Investment Research

First Republic Bank (FRC Free Report) looks like an attractive investment option now. Supported by solid loans and deposits growth, the company is expected to keep witnessing top-line improvement. Its solid balance sheet, with ample liquidity, is another positive.

Also, analysts seem to be optimistic regarding FRC’s earnings growth prospects. Over the past 60 days, the Zacks Consensus Estimate for the company’s current-year earnings has moved 2.4% upward. Thus, currently, FRC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of First Republic have gained 6.6% in the past month compared with the industry’s rise of 4%.


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Some factors that make the stock an attractive investment option are mentioned below.

Earnings Strength: Over the last three to five years, First Republic recorded earnings growth of 13.96%, higher than the industry average of 10.67%. The upward momentum is expected to continue in the near term. In 2022, the company’s earnings are projected to rise 10%. The same is likely to accelerate in 2023 and increase 15%.

Loans and Deposits Demonstrate Strength: The bank’s balance-sheet growth story remains impressive. It recorded notable growth in loan balances, driven by increased loan origination volumes, seeing a three-year (2019-2021) CAGR of 22%. Additionally, the company’s total deposits witnessed a CAGR of 31.7% in the same time frame. For the current year, management expects loan growth in the mid-teens range.

An increase in the utilization rate and solid positioning of its business banking franchise bode well for loan growth. A diversified deposit funding base and a strong loan pipeline are expected to support balance sheet strength in the upcoming quarters.

Revenue Growth: First Republic has demonstrated a considerable top-line strength over the past few years. The bank’s NII, which is its primary source of income from operations, witnessed a four-year (2018-2021) compound annual growth rate (CAGR) of 18%, primarily backed by growth in average interest-earning assets. In the same period, non-interest income reflects growth of 19.2%, aided by a steady rise in investment management fees. These have supported revenue growth in the past.

The momentum is likely to continue in the near term. For 2022, revenues are projected to increase 18.6%, whereas the top line is expected to grow 15.5% for 2023.

Robust Balance Sheet: As of Mar 31, 2022, the company had borrowings worth $5.5 billion, while its cash and cash equivalents were $7.8 billion. The time-interest-earned ratio of 14.3 at the end of first-quarter 2022 increased steadily over the last few quarters. Also, as of Mar 31, 2022, the company enjoyed investment-grade corporate long-term credit ratings of A1, A- and A- from Moody’s, Standard & Poor’s and Fitch, respectively. This renders it favorable access to debt at attractive rates. Thus, given these favorable factors, First Republic’s liquidity position seems decent to counter any worsening of the economic situation.

Superior return on equity (ROE): The bank’s trailing 12-month ROE reflects its superiority in terms of utilizing shareholders’ funds. The company’s ROE of 12.91% compares favorably with 12.26% for the industry.

Other Stocks Worth a Look

A couple of other top-ranked stocks in the banking space are Old National Bancorp (ONB Free Report) and Civista Bancshares, Inc. (CIVB Free Report) . ONB and CIVB carry a Zacks Rank of 2 at present.

Old National Bancorp’s Zacks Consensus Estimate for current-year earnings has been unrevised over the past 30 days. Over the past six months, shares of ONB have declined 11.3%.

Civista Bancshares also witnessed a 3% upward earnings estimate revision for 2022 over the past 60 days. Over the past six months, shares of CIVB have declined 13.3%.

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