LOS ANGELES—Sterne Agee has upgraded Colony Financial stock from neutral to buy after the company released strong 3Q14 reports and announced plans to combine with Colony Capital. GlobeSt.com reported the possible management combination yesterday, noting that the deal is valued at $675 million. In response to the announcement, Jason Weaver, an analyst with Sterne Agee, has raised 4Q14 estimates to $27 per share, up from $22.50.

“I really haven't changed much about my expectations for the fourth quarter at this point. I think that the results will probably be a little bit better than I had previously expected, but the big news here is obviously the prospective combination,” Weaver tells GlobeSt.com. “I think it is really a transformative event for the company; going from being a commercial mortgage REIT to a commercial mortgage REIT that owns its own asset management company is pretty powerful from a valuation perspective—what you can value the stock at in a secondary market.” Weaver calls his $27 price target a “conservative estimate,” adding that we will really have to see if the deal actually goes through.

Other than announcing the combination, Colony Financial had an impressive 3Q14 with a core and GAAP EPS of $0.38 and $0.30, exceeding core expectations of $0.35, and a book value increase of $18.97 to $19.27. The company added $453 million in assets during the quarter, which consisted of $181 million in loan originations, $175 million in loan acquisitions and $97 million of new equity investments. “The loan growth, new originations and new assets they put on the balance sheet was above my expectation, so I think that is a positive as well,” says Weaver.

When asked about other positives Weaver saw in the earnings report, he explains, “I would have hoped that we would have heard more of an update on disposing of otherwise separating Colony American Homes, but the fact that they are being quiet about that may indicate that we are about to hear an announcement, so I think that is a positive.” Weaver's report included an outlook of core EPS from $1.51 to $1.56 in 2015 and from $1.82 to $1.87 in 2016.