Burke & Herbert Financial Services (BHRB) Earns ‘Buy’ Rating: Analyst Highlights ‘Hidden Gem’ Potential
DA Davidson analyst Manuel Navas has initiated coverage on Burke & Herbert Financial Services (BHRB) with a ‘Buy’ rating and a price target of $76, signaling strong optimism for the company’s future prospects. Navas describes BHRB as a ‘hidden gem,’ highlighting its underappreciated earnings potential and the lack of market attention, which has resulted in an appealing valuation. He believes this valuation should benefit the company’s footprint in the DMV (Washington D.C., Maryland, and Virginia) region.
Navas anticipates robust earnings per share (EPS) growth throughout the forecast period, with return expectations exceeding those of its peers. His projections point to a 1.45% return on assets (ROA) and a 16.5% return on tangible common equity (ROTCE) for 2025, further enhancing the company’s valuation and indicating potential upside for investors.
The analyst forecasts that BHRB will achieve above-peer loan growth of 8% in 2025, with strong mid-single-digit growth expected over the long term. This optimistic outlook is fueled by robust pipelines due to competitor pullbacks, leading to anticipated long-term growth in the mid-single digits (4%-6%). Navas projects 2% annualized loan growth in the second half of 2024 and an impressive 8% growth in 2025, aligning with the company’s conservative target of 8%-10%.
Navas also highlights significant repricing opportunities on the funding side, which will support the company’s core net interest margin (NIM) even amidst rate cuts. This includes $400 million in brokered CDs at over 5% and approximately $1 billion in a T-fund deposit product expected to reprice quickly. With anticipated 50 basis points more in Federal Reserve rate cuts this year, totaling a -100 basis point impact for both 2024 and 2025, Navas projects a reported NIM of 3.92% for 2024 and 4.17% for 2025, coupled with an expanding core NIM.
The news of Navas’s ‘Buy’ rating has already had a positive impact on BHRB’s stock price, which is currently trading higher by 4.3% to $63.73. This positive market reaction further validates Navas’s bullish outlook on the company’s future prospects.