FRC - First Republic upgraded to Outperform at Atlantic Equities on stable NIM

Atlantic Equities analyst John Heagerty upgraded First Republic Bank ( NYSE: FRC ) to Overweight from Neutral on Friday as he expects its net interest margin to stay stable during the Federal Reserve's tightening cycle and the company to benefit from focusing on more affluent customers.

NIM is expected to stay "relatively flat" due to its reduced reliance on higher-cost funding and quicker repricing of its loan portfolio on the speed of mortgage rate increases.

Its focus on affluent consumers should help both credit quality and sustained mortgage growth, Heagerty added.

In addition, First Republic's ( FRC ) price/12-month forward EPS multiple, at 16x, is almost one standard deviation below its long-run average, "a level from which it has historically bounced strongly," the analyst wrote in a note to clients.

FRC has a "substantial funding advantage over mortgage lenders, who are reliant on wholesale markets," Heagerty pointed out. He estimates that the bank has historically outgrown the industry by ~18 percentage points per year. "Combined with First Republic's ( FRC ) strong customer service ethic, favorable target demographic, and still modest market share (5%), we believe that First Republic can continue to grow its loan portfolio at a healthy clip even during a broader market slowdown, as seen at the start of the financial crisis," he said.

Heagerty is more bullish than Seeking Alpha's Quant system, which has historically outperformed the market, which g ives FRC a Hold rating. His rating aligns with the average Wall Street rating of Buy.

See why SA contributor Investigating the Stock Market considers First Republic ( FRC ) as well positioned to weather inflationary pressures

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