This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Stock Conversion Opportunity for Bank Investors (Update 1)

Updated with comments from Investors Bancorp chief operating officer Domenick Cama.

NEW YORK (TheStreet) -- Investors may be looking at an excellent low-risk opportunity, on the anticipated second-step conversion of Investors Bancorp (ISBC) of Short Hills, N.J., to full stock ownership.

Investors Bancorp is part of a mutual thrift holding company structure, with Investors Bancorp MHC holding 58.7% of the common shares as of Dec. 30.

Shares of Investors Bancorp closed at $15.52 Friday, returning 15% year-to-date, following a 3% return during 2011. Last year's return was quite impressive, if you compare it to a 25% decline for the KBW Bank Index (I:BKX).

Sterne Agee analyst Matthew Kelley on Friday reiterated his "Buy" rating for Investors Bancorp, with a $17 price target, saying that the shares "remain undervalued trading at roughly 95% of estimated fully converted tangible book value (TBV)," while "recently converted Northeast peers now trade at roughly 125% of TBV."

Kelley added that "with capital approaching 8% and returns on equity approaching 10%, we continue to believe the company will undergo a second step conversion [to full stock ownership] this year."

Sterne Agee estimates that the company's fully converted tangible book value would be $15.63, growing by "an additional 4% (to $16.25) over the next year." Kelley also said that Investors Bancorp "executed on several transactions, opportunistically repurchased shares, and improved [its return on average assets] to roughly 0.85%."

The analyst said that the company's "fundamental improvements combined with astute capital actions warrant a higher second-step valuation," and that a conversion offering at 95% of tangible book value "out one year from now would produce a $17 fully converted TBV in current terms," supporting Sterne Agee's price target.

Then again, investors may eventually place a premium on a strongly capitalized institution, migrating to a commercial banking model, with steadily improving earnings performance. Following a second-step conversion, Investors Bancorp would be sitting on excess capital, which it could put to work through further acquisitions, or, eventually a return of capital to investors through dividends and/or share buybacks.

Investors Bancorp on Thursday reported first-quarter net income of $18.9 million, or 18 cent a share, compared to $21.1 million, or 20 cents a share, in the fourth quarter, and $18.2 million, or 17 cents a share, in the first quarter of 2011. The first-quarter results included "the acquisition of Brooklyn Federal Savings Bank and the sale of most of Brooklyn Federal's commercial real estate portfolio on January 10, 2012," and also included roughly $6 million one-time acquisition related expenses.

Stock quotes in this article: ISBC 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs