Recommendation Summary: Shares of CSTAR are a Buy – Near-term PT $19.65. Our price target is based on several fundamental reasons: 1) Solid growth of the bank in a growing Tennessee market; 2) a strong and experienced management team; 3) highly respected underwriters in the financial field.
The quiet period for the Capstar Financial Holdings Inc (NASDAQ:CSTR) IPO will expire on October 17, 2016, allowing underwriters to release their detailed analyses and reports on October 18. I believe that the underwriter reports will be largely positive and that the release of reports will push shares higher in the short-term for the following three reasons:
1. CapStar is a solid company with strong fundamentals
2. CSTR’s IPO pricing and performance were strong
3. CSTR’s underwriters are respected firms and the market will pay attention when they release their reports
We view this as a buying opportunity for investors looking for a new angle on IPO investing.
Strong Fundamentals: A Solid Regional Bank
Capstar Financial Holdings Inc (NASDAQ:CSTR) is a Nashville, TN, bank. It has seven locations, five of which are retail bank branches and two are mortgage origination offices, and $1.3 billion in assets. The company’s primary operation is its subsidiary CapStar Bank. It is a commercial bank that is concentrated in locations in the greater metropolitan service area of Nashville.
Between December 31, 2011 and June 30, 2016, the company generated CAGR of 14.5 percent for its assets and total deposits and 19.1 percent for its total loans. In 2015, the company generated net income of $7.6 million, an increase of 51.4 percent from the previous year. During the same time, return on average assets and return on average equity was 0.66% and 7.08%, respectively.
Management team highlights
Claire W. Tucker is the chief executive officer, president and director of CapStar Financial Holdings. She has over 32 years of experience in business banking. Ms. Tucker holds a Bachelor of Science from Tennessee Wesleyan University and a Master of Business Administration from the University of Tennessee.
The chief administrative officer and chief financial officer of CapStar Financial Holdings, Robert Anderson, also serves as the CFO and chief administrative officer of CapStar Bank. He has more than 20 years of executive-level experience in the finance industry.
Strong IPO and Early Market Performance
CSTR raised $39 million in its IPO through its sale of 2.6 million shares. Shares were priced at $15, which was within the expected price range of $14.50-16.50.
The firm’s IPO brought a first-day return of 6.0% and an after-market return of 9.2%. The stock is now trading at approximately $17.93.
CSTR’s impressive early start provides an additional basis for positive research reports.
CSTR’s underwriting team includes Keefe, Bruyette & Woods, Sandler O’Neil, Stephens, and Raymond James (RJF). The team is very influential in the financial space; their reports will likely result in a nice increase in share price.
Conclusion: Excellent Time to Buy
Capstar Financial Holdings Inc (NASDAQ:CSTR) has performed well since its IPO, and we expect this performance to be further bolstered by the quiet period expiation on October 17.
The company is backed by a long list of highly followed and influential underwriters, and the event is likely to result in a flood of positive reports on the company. We expect to see a price increase surrounding a short window of time for CSTR.
Disclosure: My firm, DRD Investments LLC, currently holds a long position in CSTR Shares
Note: This article is written by Don Dion. Visit his site at DRD Investments for expert analysis on current and upcoming IPOs.