NEW YORK (TheStreet) -- The credit crisis has changed the way analysts perceive bank stocks, and industry numbers back-up the general feeling that by "getting back to basics" the sector is setting itself up for a long healthy period.
Gone are the heady days of determining if a bank stock was simply overpriced relative to peers or earnings projections. Today, measures such as normalized earnings, tangible common equity and the Texas Ratio have come to the fore as investor as analysts consider a difficult landscape.
Tangible Book Value
For example, in an uncertain environment an investor considering a bank or thrift stock might take some comfort if the shares are trading at a low multiple of the company's tangible book value per share.Tangible book value is common equity less intangible assets, which can include goodwill, deferred tax assets and other intangibles. A remarkable number of banks are currently trading at the low end of this important metric. As of Tuesday's market close 632 out of 997 publicly-traded bank stocks were trading below tangible book value, according to SNL. At the end of 2007 (when the writing was already on the wall), 141 out of that group of bank stocks traded below tangible book value. During the go-go period of easy credit at the end of 2006, only 22 traded below tangible book. That shows just how far the sector has fallen. The largest bank trading below book value at Tuesday's close was Citigroup (C), which closed at $3.71 or 0.9 times tangible book value according to SNL. The shares were down 7% since TheStreet featured the company in June among 10 Bank Stocks Trading Below Book Value. Out of 23 analysts covering the shares, 12 have the equivalent of a buy rating on Citigroup, with 8 holding ratings and 2 analysts recommending investors sell the shares. Here are some other key measures of increased importance to investors, analysts and members of the media considering bank stock valuation in a difficult landscape:
Normalized EarningsAt the end of 2007 before the credit crisis hit in earnest and many stocks (in hindsight) were over-valued, numerous bank stocks were trading for over 20 times earnings, including Synovus Financial (SNV), whose shares closed that year at $24.08, or 24 times annualized fourth-quarter 2007 earnings, according to SNL Financial. Since the consensus among analysts polled by Thomson Reuters is that the company will continue losing money through 2011, the best price-to-earnings multiple we can consider is one based on the consensus earnings projection of 31 cents a shares for 2012. Synovus Financial's shares closed at $2.15, or just 7.2 times that estimate.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV