Buy - Near-term PT $19.65. Our price target is based on several fundamental reasons: 1) Solid growth of the bank in a growing Tennessee market; 2) a strong and experienced management team; 3) highly respected underwriters in the financial field.
The quiet period for the CapStar Financial Holdings (NASDAQ:CSTR) IPO will expire on October 17, 2016, allowing underwriters to release their detailed analyses and reports on October 18. The event is described in detail by the SEC.
CSTR's underwriting team includes Keefe, Bruyette & Woods, Sandler O'Neil, Stephens, and Raymond James. The team is very influential in the financial space; their reports will likely result in a nice increase in share price.
We view this as a buying opportunity for investors looking for a new angle on IPOs.
Strong Early Market Performance
We first previewed CapStar Financial here, and recommended investors considering purchasing shares at the IPO price. The firm's IPO brought a first-day return of 6.0% and an after-market return of 9.2%. The stock is now trading at approximately $17.86, a 19 percent increase from its IPO price.
CSTR's impressive early start provides an additional basis for positive research reports.
(Source: CapStar Financial Holdings, Edgar Pro-Online)
We also provided a short preview of the upcoming quiet period expiration for our premium users. Our research has found significant potential for above-market returns in the five days prior to and two days after the conclusion of a company's quiet period.
Business Overview and Financial Highlights
CapStar Financial Holdings is a Nashville, TN, bank. It has seven locations, five of which are retail bank branches and two are mortgage origination offices, and $1.3 billion in assets. The company's primary operation is its subsidiary CapStar Bank. It is a commercial bank that is concentrated in locations in the greater metropolitan service area of Nashville.
Between December 31, 2011 and June 30, 2016, the company generated CAGR of 14.5 percent for its assets and total deposits and 19.1 percent for its total loans. In 2015, the company generated net income of $7.6 million, an increase of 51.4 percent from the previous year. During the same time, return on average assets and return on average equity was 0.66% and 7.08%, respectively.
CSTR raised $39 million in its IPO through its sale of 2.6 million shares. Shares were priced at $15, which was within the expected price range of $14.50-16.50.
Management team highlights
Claire W. Tucker is the chief executive officer, president and director of CapStar Financial Holdings. She has over 32 years of experience in business banking. Ms. Tucker holds a Bachelor of Science from Tennessee Wesleyan University and a Master of Business Administration from the University of Tennessee.
The chief administrative officer and chief financial officer of CapStar Financial Holdings, Robert Anderson, also serves as the CFO and chief administrative officer of CapStar Bank. He has more than 20 years of executive-level experience in the finance industry.
Risks of Competition
CapStar notes in its filings that its peers include other regional banks, online banking platforms, large banks with long histories and name recognition and other lenders. The space is intensely competitive.
Following pricing, CSTR's P/E ratio of 25.3 is close to the industry average of 15.1 and that of other similar Tennessee banks, such as Pinnacle Financial Partners (12.6) and Commerce Union Bancshares Inc. (19).
The IPO closely followed that of FB Financial (Pending:FBK), another Tennessee Bank which went public just last week (9.15). FBK generated a 9.2 percent return on its first day of trading.
Conclusion: Excellent Time to Buy
Despite competition, the bank continues to gain market share and is looking to expand through strategic acquisitions.
CapStar Financial has performed well since its IPO, and we expect this performance to be further bolstered by the quiet period expiation on October 17.
The company is backed by a long list of highly followed and influential underwriters, and the event is likely to result in a flood of positive reports on the company. We expect to see a price increase surrounding a short window of time for CSTR.
Disclosure: I am/we are long CSTR.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.