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TheStreet Open House

New York Community Leads Bank Stocks Higher as U.S. Manufacturing Surprises to Upside

Stock quotes in this article: NYCB, I:BKX

NEW YORK (TheStreet) -- New York Community Bancorp (NYCB) was the winner among large-cap U.S. bank stocks on Thursday, with shares rising 1.3% to close at $15.58.

The Dow Jones Industrial Average and the S&P 500 each rose 0.6% while the NASDAQ Composite added 0.7%, as positive manufacturing data at home overshadowed weakening data in China.

The HSBC/MarkitFlash China Manufacturing PMI for February came in at 48.3, declining from 49.5 in January. A purchasing managers index reading below 50 indicates contraction, and this is the fourth-straight decline for the China PMI, as well as its lowest level in seven months.

"The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening. We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year," said HSBC chief economist for Greater China in a press release.

Markit in a separate release discussing the China PMI said employment data "painted the darkest picture," with payrolls falling at their fastest pace since February 2009. "PMI respondents have reported that factory headcounts have now fallen continually since last October, with the rate of job losses gathering momentum so far this year," Markit said.

The news back home was much more positive, with the Flash U.S. Manufacturing PMI coming in at 56.7, which was a huge increase from 53.7 in January and the highest level for the U.S. PMI since May 2010. The preliminary February data indicated "that output growth recovered strongly from January's three-month low, suggesting manufacturers have started to shake off the disruptions caused by heavy snowfall and extreme weather conditions in parts of the U.S," Markit said.

Also on Thursday, the Department of Labor said initial unemployment claims for the week ended Feb. 15 came in at 336,000 down 3,000 from the previous week's figure of 339,000, but above the consensus estimate of 330,000, among economists polled by Thomson Reuters.

The KBW Bank Index (I:BKX) was up 0.4% to 67.62, with all but five of the 24 index components ending with gains.

New York Community Bancorp of Westbury has seen its stock pull back 6% this year, following a 38% return during 2012.  The shares trade for 2.1 times their reported Dec. 31 tangible book value of $7.45, and for 14.2 times the consensus 2015 earnings estimate of $1.10 a share.  The consensus 2014 EPS estimate is $1.04.  Based on a quarterly payout of 25 cents, which the company has maintained for 40 consecutive quarters, the shares have a dividend yield of 6.42%.

That's one of the highest dividend yields for any U.S. bank stock, and the dividend has been a source of contention among sell-side analysts for many years.

The stock was downgraded by KBW analyst Collyn Gilbert in late January to a "market perform" rating from an "outperform" rating, although the analyst is confident about the bank's ability to maintain the dividend. 

""We continue to be encouraged by NYCB's historical track record of above-average profitability, strong capital levels, disciplined risk management, well-positioned franchise in growing NY metro market, attractive dividend yield, and potential acquisition power. However, we view the next catalyst to increase the value of NYCB shares from here will likely derive from an acquisition, which, as this past year has shown, is not in NYCB's full control," Gilbert wrote in a note to clients on Jan. 29.

Her price target for New York Community Bancorp's shares is $17, implying 9% upside over the next year, in addition to the dividend.

This chart shows the the performance and total return (assuming the reinvestment of dividends) of New York Community Bancorp's stock against the KBW Bank Index and the S&P 500's total return, since the end of 2011:

NYCB Chart data by YCharts

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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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