FRC - First Republic Bank upgraded to Strong Buy at RayJay as stock drop overdone

Raymond James analyst David J. Long upgraded First Republic Bank ( NYSE: FRC ) to Strong Buy from Market Perform, saying the bank's stock fell more than was warranted on disappointing guidance. FRC stock is up 2.1% in Monday premarket trading.

On Friday, Olga Tsokova, First Republic's ( FRC ) chief accounting officer said the company expects its 2022 net interest margin will be at the lower end of its annual guidance range of 2.65%-2.75%, due to increased funding costs caused the the Federal Reserve's rate hikes. FRC shares sank 16% as a result.

"Core fundamentals remain solid with loan and deposit growth exceeding expectations, and credit metrics remaining pristine," Long wrote in a note to clients. "FRC is the perfect defensive play among banks, in our opinion, and now it trades at a reasonable price," he added.

First Republic's ( FRC ) NIM contracted due to a shift in deposits mix and higher funding costs. "While disappointing, such NIM pressure does not change the growth profile or quality of the franchise," he said.

Meanwhile, Long reduced his EPS estimate for 2022 by $0.28 to $8.39 and for 2023 by $0.90 to $8.15. He established his 2024 EPS estimate at $9.50.

His Strong Buy rating contrasts with the SA Quant rating of Hold and is more in line with the average Wall Street rating of Buy.

SA contributor Seeking Profits, though, holds a Sell rating on the stock , citing the bank's 9 basis point NIM reduction in Q3 .

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