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TheStreet Open House

5 Buy-Rated Bank Stock Takeout Targets From KBW

Stocks in this article: WFCBPFHORITOABCBSRRFDEF

4. Oritani Financial


Shares of Oritani Financial (ORIT) of the Township of Washington, N.J., closed at $14.60 Friday, returning 22% year-to-date, following an 8% return during 2011.

The shares trade for 1.3 times their Sept. 30 tangible book value of $11.41, according to Thomson Reuters Bank Insight, and for 17 times the consensus Fiscal 2013 EPS estimate of 84 cents. The consensus Fiscal 2014 EPS estimate is 86 cents.

Based on quarterly payout of 15 cents, the shares have a divided yield of 4.11%.

Oritani Financial had $2.8 billion in total assets as of Sept. 30.

The company on Nov. 20 announced a 40-cent special dividend to shareholders of record as of Nov. 30, payable on Dec. 14.

Many companies are paying special dividends or even moving up the payment dates of their fourth-quarter dividends, in anticipation of the possible expiration of the 15% federal income tax rate limitation on qualified dividend income. Under the current rules, if an investor's adjusted gross income keeps him or her under in the 15% tax bracket, the investor actually pays no federal taxes on the dividend income, so nearly all investors could see a massive new haircut to their dividend income, unless President Obama and leaders of Congress come up with a compromise to avert the Fiscal Cliff.

Oritani CEO Kevin Lynch said that "the likelihood of increased tax rates on dividends in 2013 makes a special dividend at this time particularly appealing," and that "the amount of the special dividend is loosely based on the difference between our earnings per share and our dividends per share since we completed our second step transaction" to full stock ownership in June 2010. Following second-step conversions, thrifts are generally unable to agree to a takeout deal for three years.

Oritani's fiscal year ends on June 30. Following the special dividend announcement, KBW analyst Brian Kleinhanzl wrote in a research report that "the special dividend, when added to our existing capital return assumptions, equals 150% of our 2013 earnings estimate. That is certainly a hefty payout ratio, however, the company was very solidly capitalized, reporting a ratio of Tier 1 capital to average assets of 19.0%, as of Sept. 30.

The company reported that it had repurchased 11,159,700 since June 2011 through Sept. 30, at an average price of $13.00. Oritani had roughly 1.8 million remaining in authorized shares for repurchase, as of Sept. 30.

The company has had, by far, the strongest earnings among the five names from KBW's Consolidation List discussed here, with an operating return on average assets (ROA) of 1.24% for the 12-month period ended Sept. 30, according to Thomson Reuters Bank Insight, however, Oritani's return on average tangible common equity for the same period was a relatively low 6.81%, reflecting the excess capital.

Kleinhanzl said on Oct. 25 after Oritani reported its fiscal second-quarter results that the company had continued to achieve "strong loan growth," and that "ORIT should be a core holding for investors seeking growth plus capital returns through dividends and buybacks." The analyst's price target for the shares is $17.00, and estimates the company will earn 84 cents for fiscal 2013, followed by EPS of 88 cents in fiscal 2014.

ORIT Chart ORIT data by YCharts

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

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