Aaron James Deer, an analyst with Sandler O’Neill + Partners, L.P., says Umpqua Holdings Corp (UMPQ) is his top stock pick at the moment. He says the stock is currently trading at a discount following Umpqua’s acquisition of Sterling Bank, which roughly doubled the size of the institution.
“At this point they are still going through a lot of the integration efforts, but by midyear we should see significant cost savings from the deal,” Deer said. “So you should see a pretty good ramping of profitability over the course of this year.”
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Deer says that among institutional investors, there are still some question marks about the purchase accounting impact on Umpqua’s net interest margins. As investors get more comfortable with the purchase accounting and impact on margins, Deer expects the stock to get back to a peer multiple or even a premium valuation.
In addition, Deer says Umpqua has some innovative marketing and outreach programs that build trust in the communities where it operates. And, the communities it serves are good, healthy growth markets.
“The Pacific Northwest areas of Seattle and Portland down though the Bay Area and wine country in California are all doing well — including down to Southern California, where Umpqua also has a small presence,” Deer says. “These are all great markets, and I would expect Umpqua should put up a pretty good performance over the coming year.”
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