2. The Bancorp
(TBBK - Get Report)
of Wilmington, Del., closed at $8.77 Monday, returning 21% year-to-date, following a 29% decline last year.
According to Breese, The Bancorp is a solid play on prepaid cards, as the company "issues cards for Green Dot, NetSpend and Western Union." Unlike large banks which saw their card interchange fee revenue decline from an average of 42 cents per transaction to 21 cents, under the Durbin Rule, as required by the Dodd-Frank banking reform legislation, The Bancorp is not affected, since it has less than $10 billion in total assets.
"As all these program managers comply with Dodd-Frank, they will look to gain as much fee business as they can, looking for smaller banks to issue their cards," says Breese, who adds that "there are 60 million unbanked or under-banked consumers in the U.S, and that number's growing."
The traditional "free checking" business model, with banks deriving the bulk of their fee revenue from overdraft fees charged to a minority of customers is "gone," according to Breese, who also says the large banks "don't want these customers any more, since they are not profitable."
So The Bancorp is in a prime position to keep growing this fee business, which "is not fully understood by investors," according to Breese.
The Bancorp's quarterly ROA ranged between 0.10% and 0.41% during 2011.
The company has "spent the last couple years building the platform to support a deposit base growing at 20% a year," according to Breese, who thinks "they are at an inflection point to ramp up earnings now that the infrastructure is in place," and grow its prepaid card revenue from 30% of earnings, to 50% of earnings.
Sterne Agee rates The Bancorp a "Buy," with a $10 price target, and sees "full year 2012 and 2013 ROAs of 0.76% and 1.19% as 20%+ revenue growth continues to outpace 10% -12% operating expense growth."
The shares trade for 1.1 times tangible book value and 14 times the 2012 EPS estimate of 62 cents. The consensus 2013 EPS estimate is 98 cents.
Interested in more on The Bancorp? See TheStreet Ratings' report card for this stock.