5 Buy-Rated Bank Stock Takeout Targets From KBW

1. First Defiance Financial

Shares of First Defiance Financial (FDEF) of Defiance, Ohio, closed at $17.01 Friday, returning 18% year-to-date, after a 23% return during 2011.

The shares trade for 0.9 times their reported Sept. 30 tangible book value of $19.29, and for 10 times the consensus 2013 EPS estimate $1.73. The consensus 2014 EPS estimate is $1.64. Based on a quarterly payout of a nickel, the shares have a dividend yield of 1.18%.

First Defiance Financial had $2.1 billion in total assets as of Sept. 30. The company reported third-quarter net income applicable to common shares of $5.4 million, or 54 cents a share, increasing from $3.2 million, or 32 cents a share, in the second quarter, and $3.6 million, or 36 cents a share, in the third quarter of 2011. The main factor in the earnings improvement was a decline in the provision for loan losses to $705,000 in the third quarter, from $4.1 million the previous quarter, and $3.1 million, a year earlier.

The company's third-quarter ROA was 1.06% and its return on average tangible common equity was 11.70%, according to Thomson Reuters Bank insight.

First Defiance continues to operate under a memorandum of understanding (MOU) with the Federal Reserve, requiring regulatory approval before the company pays dividends on common shares.

KBW analyst John Barber said on Nov. 15 that "we believe FDEF has positive momentum following strong Q3 results and that its valuation should increase as earnings visibility improves," and that "the shares remain attractive given its above-peer profitability metrics."

Barber's estimates that First Defiance will earn two dollars a share in 2013, and his price target for the shares is $22.00. The analyst said that "removal of its outstanding MOU and capital return to shareholders also remain near-term catalysts."

FDEF data by YCharts

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

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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