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Three Undervalued and Overlooked Banks

In a report affirming its "market perform" rating for Comerica, equivalent to "hold," BMO Capital Markets analyst Peter Winter projected the company would repay TARP in mid-2010. He raised his guidance for 2010 to a loss of 55 cents a share (from a loss of $1.40) and net income of $2.60 in 2011.

Comerica shares are near a 52-week high, but they're selling below book value. The stock, which has risen 55% this year, has a low risk of dilution for common shareholders, especially since loan quality is improving. Based on the BMA Capital Markets earnings estimate for 2011 and Friday's closing price of $30.79, the price-to-earnings ratio would be about 12. Before the crisis began, the shares closed at $58.68 at the end of 2006, or 11 times the $5.49 per share earned that year.

After Comerica released earnings results last Tuesday, Goldman Sachs (GS - Get Report) analyst Brian Foran summed up the result as "nice credit, weak earnings," saying that the company's credit quality was "the best of the bunch reporting today," which included Regions Financial (RF), Marshall & Ilsley (MI) and Zions Bancorp (ZION). Goldman has a neutral rating on Comerica.

Comerica stands out from many other regional banks because of its early improvement in credit quality. With the repayment of TARP and normalization of earnings over the next several years, there is tremendous upside potential.

Two Small Massachusetts Thrifts

The two other companies that meet our selection criteria are smaller neighboring thrift holding companies United Financial Bancorp, which had $1.25 billion in total assets as of Sept. 30, and Westfield Financial, with $1.16 billion in assets as of June 30. Westfield Financial has yet to announce third-quarter results.
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