Friday’s Top Upgrades (and Downgrades): SCBT Financial Corporation (SCBT), First Financial Holdings, Inc. (FFCH)

And now, the “good” news
Last but not least, we come to the honest-to-goodness upgrade of the day: SCBT Financial. As you may have heard, SCBT announced a merger with fellow South Carolina banker First Financial Holdings, Inc. (NASDAQ:FFCH) yesterday. The new entity, to be known by the acquired company’s name going forward, says it will control $8.3 billion worth of total assets, including $6.9 billion in deposits and a network of 148 branches spread across the Carolinas.

SCBT’s brother bankers like the deal a lot, with both BB&T Capital and Raymond James recommending that investors buy the stock today and with both positing a $52 target price within the next year. If they’re right, that will work out to a tidy 11.6% capital gain on the stock, which when combined with SCBT’s 1.7% dividend yield is not too shabby a profit.

Will it happen? It’s hard to say. Personally, though, when I look at the stock — now trading at $715 million in market cap — the price doesn’t look all that attractive relative to the trailing profits booked by the two firms together (about $55 million over the past year). Assuming the deal goes through, SCBT will have to issue new shares worth about $302 million to acquire First Financial, resulting in a market cap of a bit more than $1 billion and implying about a 20 P/E on the combined company once the merger is complete. (It’s scheduled for Q3 2013.)

To justify that price, the combined bankers will have to grow faster than the 12% rate SCBT’s currently pegged for and a whole lot faster than First Financial’s projected 5% growth rate.

The article Friday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of IMAX. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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