NEW YORK (TheStreet) -- The day after he resigned from Berkshire Hathaway (BRK.B), investors flocked to piggy-back on David Sokol's investment in Middleburg Financial Corporation (MBRG), sending shares of the small Virginia lender up 25%, to $18.79 in furious afternoon trading, before the shares settled down to $16.50.
Some investors made a quick killing Thursday as they remained focused on the tape, while others may have gotten creamed, but this little bank is now looking very pricey relative to expected earnings, and the chances of a take-out at a nice premium, would appear to be slim.
Sokol's been feeling the heat after Berkshire Hathaway CEO Warren Buffet disclosed Wednesday that Sokol was loading up on shares of Lubrizol (LZ), whilst simultaneously pitching Buffet to acquire the lubricant and chemical manufacturer. Berkshire Hataway announced the Lubrizol deal on March 15.In an interview on CNBC early Thursday, Sokol said he had done nothing wrong while recommending Lubrizol to Buffet, and had done the same for another of his investments, which he described as a small bank. According to InsiderScore.com, Sokol holds a 20.2% stake in Middleburg Financial. Are investors wise to follow the herd, or are they lemmings? Middleburg Financial lost $2.7 million, or 39 cents a share, in 2010, although the company earned $1.6 million, or 23 cents a share in the fourth with strong mortgage generation and improved credit quality. The consensus earnings estimates among the three analysts covering Middleburg Financial polled by Thomson Reuters are the company to earn 74 cents a share in 2011 and 81 cents a share in 2012. Based on the 2012 estimate, and a $16.50 share price, the forward price-to-earnings ratio for the bank would be over 20, which is rather high, when compared to slightly better-known names. The big four all trade for less than half of Middleburg's forward P/E. Bank of America (BAC) is cheapest, trading for just 7.2 times the 2012 consensus earnings estimate of $1.86 a share, based on Wednesday's closing price of $13.45. Next is JPMorgan Chase (JPM), with a forward P/E of 8.3, based on a 2012 consensus EPS estimate of $5.58 and Wednesday's closing price of $.46.45. For Citigroup (C), the forward P/E was 8.4, based on a 2012 EPS estimate of 53 cents and Wednesday's closing price of $$4.45; and the "most expensive" among the big four was Wells Fargo (WFC), trading for 8.9 times the consensus 2012 EPS estimate of $3.59, at Wednesday's closing price of $31.91.
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