Barclays: First Hawaiian Expensive, But Still A Buy

The positives of First Hawaiian Inc (NASDAQ: FHB) include “its leadership position in Hawaii, steady organic growth, exemplary credit quality track record, highly efficient operating model, and opportunity to return excess capital to shareholders over time,” Barclays’ Matthew J. Keating said in a report. He initiated coverage of the company with an Overweight rating, with a price target of $29.

Analyst Keating mentioned three reasons that lend upside to First Hawaiian’s stock.

Strong Economy

Hawaii’s economy seemed to be “hitting on all cylinders,” Keating noted. Visitor expenditures had increased annually since 2009, and the figures were expected to reach a record high in 2016. Moreover, Hawaii’s real estate and construction sectors were healthy, enabling First Hawaiian to achieve loan growth higher than the estimate of mid-single-digit in 2017.

Significant Return Of Capital

At 50 percent, the company’s current dividend payout is “the 4th highest in our coverage,” the analyst wrote. He expects the total payout ratio to increase to 100 percent in 2018 and estimates excess capital of ~$500 million.

Upward EPS Revisions

“We conservatively model no interest rate hikes until the latter part of 2017. However, the current market implied probability of a rate hike this year is ~60%. FHB’s above average asset sensitivity (rates +100bp, NII +7%) position it as an outsized beneficiary of potential rate increases,” Keating stated.

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