Bar Harbor Bankshares Upgraded on 1Q Results, M&A Potential

Bar Harbor Bankshares (BHB) in Maine is getting some love from analysts following its record earnings performance in the first quarter.

RBC Capital Markets on Wednesday raised its price target on the small bank's stock, citing its consistent profitability in a slow-growth state, its modest price-to-book value, and its potential to grow through acquisitions. Analysts Gerard Cassidy and Jake Civiello also raised their earnings estimates for the year by 29 cents, to $3.24 per share, after the $1.2 billion-asset bank beat their first-quarter estimates by nine cents.

The stock has already surpassed the analysts' previous target of $33 — it is up 25% year to date, to $37 late Thursday — and they are now predicting it will go as high as $39.

"As a function of the slow-growth Maine economy, Bar Harbor is never going to be a high-flying lending machine, in our opinion," the analysts wrote in a research note. "However, investors who favor a stable franchise with consistent profitability, admirable credit quality metrics, a solid 3.1% dividend yield and an experienced management team should add to positions at the current valuations."

Bar Harbor earned a record $3.2 million in the quarter, or 81 cents per share, due largely to a 4.8% increase it total loans from three months earlier and further declines in its already low levels of problem loans.

The company is also very well capitalized, with a total risk-based capital-to-assets ratio of 15.94%, and analysts expect management to put that some of the capital to use by acquiring a small bank, a cluster of branches, a portfolio of loans, or some combination of the three.

They believe that Bar Harbor was among the bidders for 15 Bank of America (BAC) branches that rival Camden National Bank (CAC) announced it was buying this week, but backed off because the deal may have been too large for it too absorb "without earnings dilution and net interest margin contraction" for an extended stretch of time.

"That said, we believe other opportunities for franchise expansion will present themselves at some point in the future," they wrote.