This Day On The Street
Continue to site
ADVERTISEMENT
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

M&T, 5 Other Banks Shine in Deep Data Dive

NEW YORK (TheStreet) -- In the midst of an epic two-year run for the sector, with tepid overall earnings performance, bank stock investors may be wondering if there is anything left to buy. Sterne Agee analyst Brett Rabatin and his analyst team have identified a handful of names trading below historical average valuations while showing improved core earnings performance.

"Investors have largely shrugged off lackluster earnings for the sector over the past several quarters with expectations for a more favorable yield curve, greater operating leverage, and improving loan growth in 2014," Rabatin wrote in a note to clients on Monday.  The analyst also wrote that the Sterne Agee Bank and Thrift Index is up 37% this year and now trades "at an elevated" 15.5 times estimated 2014 earnings, 14 times estimated 2015 earnings and 1.8 times tangible book value.

"Importantly, we would note that the SA Bank Index has seen 2-3x multiple expansion through the year, despite forward estimates only increasing 3% and 2% over the last twelve and six months, respectively," Rabatin added.  Those are pretty stark numbers that could indicate that we're nearing the end of the bull run for banks, and that investors had better become more selective. 

Most banks have been suffering from narrow net interest margins, because the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008.  While the increase in long-term interest rates this year, in anticipation of a tapering of Federal Reserve bond purchases, has had some positive effect on net interest margins, banks have also seen a decline in noninterest income as the increase in long-term rates has led to a decline in mortgage loan volume.

Last week's economic numbers were quite strong. Assuming the unemployment rate continues to improve, short-term rates will begin to rise within the next year or two, and bankers will be breathing a sigh of relief as the parallel rate rise boosts their bottom lines.

Meanwhile, the largest U.S. banks will be facing tremendous pressure after federal regulators release their final set of guidelines to enforce the Volcker Rule, a feature of the Dodd-Frank bank reform legislation that bans "proprietary trading" by the largest banks.  Volcker could lead to decisions by the largest banks to spin-off their investment banking operations and could also provide a wonderful opportunity for non-bank financial firms to build their businesses.

Adding to that uncertainty is the continuing focus of the Department of Justice and regulators on the largest banks.

With so much to worry about, it's easy to understand why some of the best-known U.S. banks are trading at discounted levels to tangible book value or earnings estimates:

  • Shares of JPMorgan Chase (JPM) closed at $56.06 Friday and trade for 1.5 times tangible book value, according to Thomson Reuters Bank Insight, and for and 9.3 times the consensus 2014 EPS estimate of $6.01.  The shares trade for 8.8 tiimes the consensus 2015 EPS estimate of $6.36. 
  • Citigroup (C) closed at $51.49 Friday and trades for 0.9 times tangible book value and 9.5 times the consensus 2014 EPS estimate of $5.41.  The stock trades for 8.7 times the consensus 2015 EPS estimate of $5.95. 

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
MTB $122.31 0.18%
SUSQ $13.98 0.58%
FB $79.94 0.76%
GOOG $536.25 0.74%
TSLA $246.67 -0.32%

Markets

DOW 18,145.20 +103.66 0.57%
S&P 500 2,118.58 +14.38 0.68%
NASDAQ 5,078.7910 +46.04 0.91%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs