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TCF Financial (TCB) of Wayzata, Minn., closed at $10.78 Wednesday, returning 5% year-to-date. Based on a five-cent quarterly payout, the shares have a dividend yield of 1.86%.
O'Connor's price target for TCF Financial is $12.00, and he expects the company to earn 83 cents a share in 2012, followed by EPS of $1.39 in 2013.
The analyst expects TCF's net interest margin to improve, as the company has $115 million in trust-preferred shares outstanding "that are likely to be called in 2012 (adding 10bps to NIM)," and points out that the company has "$4.4b of long-term borrowing" at an "average rate of 4.3% (vs. 2.5-3.0% for peers)."
A improved funding mix, along with "the recent acquisition of Gateway and the BRP deal should add $1.3b (or 10%) of higher margin loans in 2012," according to O'Connor, leading to "solid net interest income growth in 2012/2013."
O'Connor says that TCF "has made a number of strategic changes in the past 1-2 years as it tries to reduce reliance on home equity, overdraft and debit card revenues," but that "at some point, a sale of the company can't be ruled out if either of these drags proves to be more difficult than expected to offset."
Interested in more on TCF Financial? See TheStreet Ratings' report card for this stock.Interested in more on TCF Financial? See TheStreet Ratings' report card for this stock.