BankUnited Witnesses Bottom-Line Pressure: Time To Sell?
Zacks Investment Research | Nov 27, 2016 08:39PM ET
On Nov 25, 2016, we issued an updated research report on BankUnited, Inc. (NYSE:BKU) . The company’s elevated expenses and pressurized margins are major causes of concern and are likely to hurt its profitability in the near term. Shares of the company underperformed the Zacks categorized Major Regional Banks industry over the last six months, probably due to these reasons.
Notably, shares of BankUnited have declined approximately 1.3% year to date.
The company’s operating expenses have been rising at a four-year (2012–2015) CAGR of 18.1%. Moreover, management expects expenses to remain elevated in the near term, based on the expectations of a rise in funding costs and M&A activities.
Moreover, its continuously declining net interest margin remains another concern for the company. Also, the trend is not expected to reverse until the interest rate environment improves significantly.
Further, despite a rebound in the housing sector, BankUnited’s huge exposure to residential mortgage loans makes it prone to risks related to rising interest rates. Though, the company has been reducing its exposure to these loans, single family residential and home equity constituted about 21% of its total loans as of Sep 30, 2016.
Nevertheless, the company is well positioned to grow organically, supported by a strong balance sheet and capital position. Also, it is trying to change its deposit mix by increasing the proportion of low cost non-interest bearing demand deposits, which is likely to ease top-line pressure.
Also, over the past 30 days, the Zacks Consensus Estimate has been revised downward by nearly 0.5% to $2.08 per share for 2016.
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