We initiate coverage of COLB with a Strong Buy rating and $40 price target. Columbia Banking System, Inc. is a leading regional bank that provides banking services to small and medium businesses, professionals, and individuals in the Pacific Northwest and California.
Our thesis is based on our sharply contrarian EPS trajectory — we forecast a material dip in FY25E driven by a $146mn after-tax merger charge and $48mn mandated CECL provision, followed by a dramatic earnings inflection in FY26E to $3.40/shr, 11% above consensus, as full run-rate synergies and non-cash purchase-accounting benefits from Pacific Premier transaction are realized.
We believe the market is mispricing these near-term impacts and underestimating the magnitude and timing of the EPS inflection, allowing us to apply an 11.7x FY26E P/E multiple — supported by COLB’s low NPAs (0.47%), sound total capital (12.9%), and NIM expansion as quantitative tightening unwinds and funding costs decline.
Our PT methodology implies 73% upside, well above current regional bank peers, and is supported by our quantitative scenario analysis.
Key risks to our thesis include a delayed capture of Pacific Premier synergies or unexpected credit deterioration, which we believe are priced into our multiple and forecast assumptions.
Bottom Line: Our differentiated EPS trajectory and disciplined multiple approach support a favorable R/R as COLB’s earnings power becomes evident to the market over the next 12-18 months.