Umpqua Holdings Corp’s (UMPQ) acquisition of Sterling Financial Corporation (STSA) may turn out to be a better deal than originally expected once investors realize the expense savings opportunities the agreement will bring, says Brett D. Rabatin, Senior Research Analyst at Sterne Agee & Leach, Inc..
“One of my favorite names is Umpqua; they are in a large basically quasi-MOE with Sterling Financial, and I think the estimates are going to move up as a couple of things happen,” Rabatin said. “Overall the deal could be a little better than expected.”
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Mr. Rabatin also points to an acquisition UMPQ did earlier in the summer, which he expects will continue to better margins. Additionally, with the mortgage banking income for both UMPQ and STSA and pro forma declines over upcoming quarters, Mr. Rabatin believes investors will become more satisfied with expectations for 2015.
“Both Umpqua and Sterling do have mortage banking operations, and I think one of the things people have been fearful of for good reasons the past six months have been banks that do have exposure to mortgage banking and those earnings contributions and what that impact will have on EPS,” Rabatin said. “But I think as the mortgage banking income for both these companies and then pro forma declines over the next few quarters, I think people will be more comfortable with a more peer-like valuation on 2015 expectations.”
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