Fulton Financial Downgraded, Analyst Highlight Valuation And Interest Rate Concerns

Stephens analyst Matt Breese downgraded Fulton Financial Corporation FULT to Equal-Weight from Overweight, primarily due to valuation, raising the price target to $16 from $14.

In addition to valuation, given the company's asset-sensitive balance sheet with NII expected to decline ~4.1%, if rates declined 100bp juxtaposed with the analyst's forecasts calling for 75bp and 50bp of rate cuts in 2024 and 2025, the analyst notes it's an opportune time to move to the sidelines from a rating perspective.

The analyst remains supportive of FULT's balance sheet composition, highlighted by a low CRE concentration at 175% CRE/ total risk-based capital, low office exposure at 3% of total loans, granular deposits highlighted by <$30K in avg. balances per account and avg. deposit age of +11 years.

In addition, the company has been active on the share repurchase front, and revenues remain diverse, with 22% of operating revenues derived from fee income sources.

According to the analyst, these attributes will serve the bank well in 2024 and beyond, particularly as deposit costs continue to increase and CRE credit quality across the industry deteriorates.

The analyst expects the company to add scale over the next 1-2 years via organic growth and acquisition and thereby create operating leverage and outline a cost cutting/efficiency plan to reduce the NIE/asset ratio, standing at 2.50% in 3Q23 vs. the industry at 2.29%. 

Given the well-priced, low-risk PBIP deal from 2022, the analyst sees similarly priced/sized deals would be well received as would an efficiency plan. 

Price Action: FULT shares are trading lower by 0.25% to $16.27 on the last check Thursday.

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