"We are less optimistic on improvement in profitability vis-à-vis peers and consider the premium valuation (18.5x FY14E vs. TX peer median of 15x) less warranted relative to the fundamentals."
Rabatin's price target for Cullen/Frost's shares is $61.50, and he estimates the company will earn $3.80 a share this year, with EPS growing to $3.97 in 2014, and $4.33 in 2015.
First Financial Bancshares
First Financial Bancshares had $5.0 billion in total assets as of June 30. The stock closed at $62.93 Monday, returning 63% this year, following a 20% return during 2012.
The shares trade for 23.0 times the consensus 2014 EPS estimate of $2.73.
Based on a quarterly payout of 26 cents, the shares have a dividend yield of 1.65%.
"The company is one of the best operated, well-run banks in the country (noting a 1.62% trough ROA through the credit cycle) and we were too conservative when the valuation was a more reasonable 15-16x forward earnings power," Rabatin wrote in a note on Tuesday. "However, with the shares today at 23x our FY14E and receiving what we believe to be the benefit of deploying capital that has yet to appear likely, we think the shares of this high quality company are ahead of themselves."
First Financial reported a very strong Tier 1 leverage ratio of 10.32%, and a ratio of total equity to assets of 11.56%, as of June 30.
Rabatin estimates the company will earn $2.50 a share this year, with EPS rising to $2.69 in 2014 and $2.90 in 2015.
The analyst did include a caveat: "Going Against FFIN is Typically a Bad Idea."
"While we think the shares are likely to underperform [small-cap and mid-cap] peers in the near term, we feel compelled to point out the consensus rating is already fairly bearish on the shares, as is the level of shares shorted (17% of outstanding)," Rabatin wrote. "Over the longer term we are likely to be more positive on FFIN."
-- Written by Philip van Doorn in Jupiter, Fla.