5 Buy-Rated Banks With Increased Upside: FBR (Update 1)

2. Webster Financial

Shares of Webster Financial (WBS) of Waterbury, Conn., closed at $21.02 Friday, returning 3% year-to-date, after returning 4% in 2011. The company is paying a quarterly dividend of a nickel a share, for a dividend yield of 0.95%.

The company reported fourth-quarter net income available to common shareholders of $39.6 million, or 43 cents a share, compared to $41.4 million, or 45 cents a share, the previous quarter, and $24.3 million, or 29 cents a share, a year earlier. The main factor in the year-over-year bottom line improvement was a reduction in the provision for loan losses to $2.5 million from $15 million.

The company's fourth quarter operating ROA was 0.88%, and the ROA has ranged between 0.72% and 0.94% over the past year, according to SNL Financial.

FBR analyst Bob Ramsey on Thursday raised his price target for Webster to $25 from $22, saying he expected "high single-digit growth for the year" in earning assets, and that "targeted cost saves will drive operating costs lower, to below $120 million/quarter by year-end, providing upside to consensus estimates."

Ramsey noted of Webster's "strong 4Q11 loan growth, including 5.9% sequential growth in commercial non-mortgage and commercial real estate portfolios," and raised his 2012 operating EPS estimate by a nickel, to $1.75.

In discussing the company's earnings conference call, the analyst said that "WBS's top priority is its dividend, and we would expect a modest increase in 2Q12, with a gradual build to a 30% payout ratio," but that share repurchases would likely wait until the end of the year.

Webster Financial's shares trade for 1.4 times tangible book value, according to SNL, and for 12 times Ramsey's 2012 EPS estimate.

Interested in more on Webster Financial? See TheStreet Ratings' report card for this stock.

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