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3 Highly Rated Community Bank Takeout Targets from KBW

NEW YORK ( TheStreet) -- While the bull market for bank stocks has lifted most boats this year, there are still a few bargain stocks out there among potential bank M&A targets, according to KBW.

The U.S. banking industry has been consolidating for decades. The total number of banks and savings and loan associations declined to 6,940 as of June 30, from 8,451 in June 2008 and 9,313 in June 2003, according to the Federal Deposit Insurance Corp.

Most of the community banks being gobbled up by local rivals are privately held, but there are plenty of publicly traded potential targets out there. Since investors are looking to make a profit on a takeout premium, many of the potential targets have seen strong returns for their shares this year.

According to KBW analyst Frank Barlow, publicly traded banks on his firm's "potential sellers list" as a group saw their stocks return 42% this year through Tuesday. Banks on KBW's "potential buyers list" have also seen their shares perform quite well, with their stocks returning 30.9%.

A year-to-date return of 30.9% excellent, even for this year's bull market, but it trails the KBW Regional Banking Index, was up 35% year-to-date through Tuesday.

Here are the three "outperform" rated banks on KBW's "potential sellers list."

Shares of Flushing Financial Corp. (FFIC - Get Report) of Lake Success, N.Y., closed at $20.04 Wednesday. The shares have returned 33% this year, trade for 14.7 times the consensus 2014 earnings estimate of $1.36 a share, among analysts polled by Thomson Reuters.

KBW analyst Brian Kleinhanzl's price target for the shares is $21.00. The stock trades at a discount to peers, according to Kleinhanzl, who wrote in KBW's M&A report on Wednesday that the bank has "a Long Island footprint and Asian niche which could be attractive to buyers looking for a fill-in transaction or entry into [the] NYC market."

OmniAmerican Bancorp (OABC)of Fort Worth, Texas, has seen its shares decline 5% this year through Wednesday's close at $22.00. The shares trade for 27.2 times the consensus 2014 EPS estimate of 81 cents.

KBW analyst Brady Gailey's price target for OmniAmerican's shares is $26.00. The analyst in a note on Oct. 28 said the price target includes a "takeout premium, which we believe happens in the short term." The analyst also cited the bank's "attractive Dallas/Fort Worth footprint."
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