KBW Exceeds Our Own 2007 Price Targets; What To Do Now?

KBW Inc. (KBW-NYSE) this morning has done some of what we had been expecting, although now it feels perhaps above and beyond expectations.  The company beat earnings $0.88 basic EPS instead of $0.35 EPS estimates and this put EPS up threefold for all of 2006 compared to 2005.  There are some items accounting for all of this, but no matter how you slice it the street loves it.  Shares are up 14% at $36.50 after opening under $35.00; its prior 52-week high was $31.80.  Here is what we had said right at the IPO timing and here is what we said about it still being worth holding after the IPO.

Since KBW is the investment banker ‘for investment banks’ and for the banking and financial sectors they truly are sitting in the sweet spot.  We had expected this one to trade quite well for some time, but now the yearly target has been hit.  We were looking for as much as $35.00 this year.  We’ll address this one this week with a better outlook after we have had a chance to review the conference calls.  For now we aren’t changing any stance and would be inclined to stand firm on it (or at least on most of it). 

No one ever went broke taking profits and getting out before the insiders and employees can start shovelling out there shares to lock in profits and take out some of their instant-millionaire money wouldn’t be criticised.  Most likely the thing to do here is to take some profit and keep some in the game.  There are probably 30 or more regional banking mergers coming in the next 18 to 24 months, and KBW is set up to be involved in many of these.  Stay tuned this week for more on KBW.

Jon C. Ogg
February 20, 2007