Square 1 Financial upgraded to a "buy"

07/10/2014 5:18 PM

07/10/2014 5:19 PM

Analyst Aaron James Deer of Sandler O'Neill + Partners upgraded his rating on Square 1 Financial shares from a "hold" to a "buy."

O'Neill wrote in a research note that the corporate parent of Durham-based Square 1 Bank stands to benefit from a likely increase in interest rates, strong venture capital activity and a hike in the shares of publicly traded biotech and Internet stocks.

Square 1 provides loans and other banking services to venture capital firms and the companies they invest in nationwide. It often receives warrants to acquire a startup's stock when it makes a loan.

Deer also raised his 12-month price target for Square 1 shares from $20 to $21 and projected that earnings per share in 2016 would be 28 percent higher than in 2015.

Investors, however, paid little heed to the upgraded rating on Thursday. Shares closed at $18.27, down 14 cents.

Square 1 went public at $18 per share at the end of March.

Square 1 will benefit more than most banks from higher interest rates because 94 percent of its loans are variable-rate loans, while 62 percent of its deposits are in noninterest-bearing accounts, according to O'Neill.

Increases in technology stock indexes, moreover, could create gains from the bank's warrants, O'Neill wrote.

"Despite some uncertainty about where we are in the tech cycle and when interest rates might move higher, we think the fundamental outlook for Square 1 over the coming year remains excellent," he added.

Join the Discussion

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Terms of Service