Our $75 target price for TCBI is derived from our discounted residual income model, which values an enterprise based on its discounted excess returns over its cost of equity. Our residual income model incorporates our 3-year forward earnings projection followed by a 7-year fade period to our normalized ROTE estimate of 11.0%. The key inputs to our 10.5% cost of equity are a risk-free rate of 4.5%, ERP of 3.5%, and a beta of 1.6. We assume a 3.0% long-term growth rate.

Key macroeconomic risk to TCBI is the Fed being unable to achieve a “soft landing”, which could lead to increased credit risk. While we do not expect significant losses, if credit conditions deteriorate beyond our expectations, it may impose significant headwinds to earnings and achieving our target price.


Company-Specific Positive Risks: TCBI is undergoing a multiyear strategic pivot to being a commercially focused bank. Given the 5-year strategic investment plan, we believe there is upside potential if long-term targets are increased or the pace of improvement accelerates.


Company-Specific Negative Risks: TCBI has a unique concentration of commercially focused clients, with a dependency on the multiple Texas MSAs. While we believe management has proven to be solid operators, their relatively new strategic plan carries significant operating risk given the significant overhaul of the franchise’s core operations. 


If the impact on the company from any of these factors proves to be greater/less than we anticipate, it could prevent the stock from achieving our target price or could cause our target price to be materially outperformed.