TSC Ratings' Updates: Texas Capital Bancshares

The following ratings' changes were generated on September 26.

Texas Capital Bancshares(TCBI Quote) has been upgraded from hold to buy. Texas Capital Bancshares, Inc. operates as the holding company for Texas Capital Bank, National Association that provides various banking and financial services for middle market commercial and high net worth customers in Texas. It primarily engages in generating deposits and originating loans. The company's strengths can be seen in multiple areas, such as its expanding profit margins and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

The gross profit margin for TCBI is rather high; currently it is at 53.90%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 8.50% trails the industry average.

TCBI, with its decline in revenue, underperformed when compared with the industry average of 11.1%. Since the same quarter one year prior, revenue fell by 13.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

TCBI's earnings per share declined by 29.0% in the most-recent quarter compared with the same quarter a year ago. This company has reported somewhat volatile earnings recently.

We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, TCBI's increased its bottom line by earning $1.17 vs. $1.10 in the prior year. For the next year, the market is expecting a contraction of 4.7% in earnings ($1.12 vs. $1.17).