Equity analysts initiated coverage on a number of West Coast banking companies this week.
Michael S. Hodes, an analyst at Goldman Sachs Group Inc., initiated coverage Wednesday of two California mortgage companies: Countrywide Financial Corp. of Calabasas and Golden West Financial Corp. of Oakland.
He gave the $73 billion-asset Countrywide's shares an "outperform" rating and wrote in a note that the shares could rise by 20% "in the intermediate term."
Countrywide's "growing scale in mortgage banking has fostered leading U.S. positions in mortgage origination and servicing and enabled an accelerated diversification into less cyclical areas such as spread lending," Mr. Hodes wrote. "Though mortgage production is still the key earnings feeder … and we see potential headwinds, the growing earnings resiliency at the company is underappreciated."
He was less bullish on shares of the $115 billion-asset Golden West, which he rated "in-line," even though he likes the company's simple business model of selling adjustable-rate mortgages.
Mr. Hodes' concerns: Golden West's price-to-earnings multiple of 12, which is only in the middle of historical ranges for the stock; intermediate-term pressure on credit costs; and the unfavorable yield curve's effects on its margin.
A spokeswoman for Countrywide would not discuss the note. A spokesman from Golden West did not return a phone call before press time.
On Tuesday, Kathy Steinbrecher, an analyst at Wedbush Morgan Securities Inc., began coverage of East West Bancorp of Los Angeles, which caters to Chinese Americans, by giving the stock a "buy" rating.
Though she said in an interview that she based her rating mainly on valuation, Ms. Steinbrecher praised the $6.7 billion-asset company's earnings growth potential, credit quality, and management team.
Julia Gouw, East West's chief financial officer, said Wednesday that it expects its net interest margin to stay between 4.1% and 4.2% in the third and fourth quarters. It was 4.15% as of June 30.
Ms. Steinbrecher also began coverage of four other California banking companies: Cathay General Bancorp and Hanmi Financial Corp., two Los Angeles firms that cater to Asian Americans; UCBH Holdings Inc. of San Francisco; and Commercial Capital Bancorp Inc. of Irvine. All four stocks were rated "hold."
As a rising rate environment has put pressure on the net interest margins of other banking companies, "these banks are beneficiaries," and so is East West, she said.
Sandler O'Neill & Partners LP analyst Brian Conn initiated coverage of Umpqua Holdings Corp. of Portland, Ore., by giving the stock a "buy" rating, Mr. Conn wrote in a note that he expects the $5 billion-asset company to have double digit earnings growth over the next two years.
Mr. Conn wrote that he expects Umpqua, the holding company for Umpqua Bank and the brokerage firm Strand, Atkinson, Williams & York Inc., to benefit from an asset-sensitive balance sheet and its "ability to maintain its recent margin gains and see modest additional improvements."
In the second quarter Umpqua's margin expanded 24 basis points from the same period last year, to 4.81%, according to earnings reports. Mr. Conn expects the margin to expand by 2 to 3 basis points a quarter.
Ray Davis, Umpqua's president and chief executive, said Wednesday that he was "impressed with the amount of homework that Brian Conn did - not only on Umpqua, but on the markets we serve."
Shares of Countrywide fell 0.6%, Golden West rose 1.3%, East West fell 1.1%, and Umpqua fell 1.4%.
