NEW YORK (
) -- Most bank stock coverage is rightly centered on the volatility for the largest sector players this year, but investors should also consider smaller, steadier players for a portion of their long-term portfolios.
has assigned A (Excellent) ratings to just three mid-cap or large-cap bank stocks, although many more have "recommended" ratings of B+ (Good) or higher.
Rather than just considering 12-month price targets, based on earnings estimates, capital levels and various market and environmental risks, the way most sell-side analysts do,
places its emphasis on long-term total returns, as well as revenue trends and capital strength and dividends, while also considering short-term performance, financial stability and volatility.
With the sector's recent downturn -- centered around
CEO James Dimon's disclosure on May 10 of a $2 billion second-quarter hedge trading loss -- the largest U.S. banks were trading at historically low multiples to book value and forward earnings estimates, as of Tuesday's market close.
The multiples for the "big three" are certainly attractive for investors who can handle the volatility associated with numerous political and regulatory headwinds for the group,
Bank of America's
legacy mortgage mess, and JPMorgan's unfolding hedge loss drama, which includes the suspension of the company's share buyback program, investigations by several federal regulators, and upcoming Senate hearings.
- Shares of Citigroup (C) - Get Citigroup Inc. Report closed at $26.92 Tuesday, returning 2% year-to-date, following a 44% decline during 2011. The stock's five-year total return was a negative 94%, according to Thomson Reuters Bank Insight. Citigroup's shares were trading for just over half their tangible book value, and for six times the consensus 2013 earnings estimate of $4.68 a share, among analysts polled by Thomson Reuters.
- Shares of Bank of America closed at $6.98 Tuesday, returning 26% year-to-date, following last year's 58% drop. The five year total return was a negative 84%. The shares traded for 0.6 times tangible book value, and for seven times the consensus 2013 EPS estimate of $1.04.
- JPMorgan Chase closed at $34.01 Tuesday, returning 4% year-to-date, following a 20% decline during 2011. The five-year total return was a negative 21%. The shares traded for 1.1 times tangible book value, and for six times the consensus 2013 EPS estimate of $5.43.
In contrast, the three A-rated bank stocks discussed below were trading for at least 1.6 times tangible book value, and at least 12 times forward earnings.
But the five-year total returns for these three names also stand in sharp contrast to the largest three U.S. banks, ranging from 27% to 87%. The group has also seen much stronger earnings performance over the past five quarters than "the big three."
Here are the
assigned "A" ratings by
, in no particular order:
Community Bank System
Community Bank System
of DeWitt, N.Y., closed at $26.68 Tuesday, down 3% year-to-date, following a 4% return during 2011. The five-year total return was 57%, according to Thomson Reuters Bank Insight.
Based on a 26-cent quarterly payout, the shares have a dividend yield of 2.84%.
The company has a deal in place to purchase 19 branches as part of
First Niagara Financial Group's
plan to divest roughly 100 branches following its purchase of 200 branches from
, in a deal that was completed last Friday. The branch purchase will include roughly $218 million in loans and $955 million in deposits.
Community Bank System raised $57.5 million in common equity in January, to support the branch acquisitions.
The company had $6.9 billion in total assets as of March 31. CBU's operating return on average assets (ROA) has ranged between 1.14% and 1.24% over the past five quarters, according to Thomson Reuters Bank Insight.
The shares trade for 2.2 times tangible book value, according to Thomson Reuters Bank insight, and for 12 times the consensus 2013 EPS estimate of $2.15. The consensus 2012 EPS estimate is $2.04.
Guggenheim Securities analyst David Darst has a neutral rating on Community Bank System, with a $29 price target, saying in late April after the company reported its first-quarter results that the share were trading "in line with the historical earnings multiple," and that "a premium valuation versus peers is warranted given the company's clean asset quality, favorable market demographics with growth opportunities, and our expectations for CBU to generate ~19%
return on tangible equity in 2012."
Darst estimates that First Niagara will earn $2.04 a share this year, followed by earnings of $2.14 a share during 2013.
Interested in more on Community Bank System? See TheStreet Ratings' report card for this stock.
of Tulsa, Okla., closed at $56.36 Tuesday, returning 4% year-to-date, following a 5% last year. The five-year total return was 27%.
Based on a 33-cent quarterly payout, the shares have a 2.34% dividend yield.
The company had $25.9 billion as of March 31, with branch operations in Oklahoma, Texas, New Mexico, Colorado, Arkansas, Arizona, Kansas, Missouri and Utah.
BOK Financial's ROA has ranged from 1.05% to 1.38% over the past five quarters.
The shares trade for 1.6 times tangible book value, and for 12 times the consensus 2013 EPS estimate of $4.54. The consensus 2012 EPS estimate is $4.55.
Sterne Agee analyst Brett Rabatin has a neutral rating on BOK Financial and said on April 25 after the company reported its first-quarter results that the company continued "to exceed our profitability assumptions" and that "results were very impressive in 1Q12 given strong fee income mostly from mortgage banking and solid loan growth," however, the analyst also said that he believed the company's ROA would "be slightly lower going forward."
Rabatin said that "BOKF's model of diversified fee revenues sources and geographic positioning are continuing to result in stronger profitability than we expected," and that "the shares have some modest near-term upside and we continue to view the shares as a lower valuation alternative to more dearly valued Texas peers," but that "a more bullish thesis requires expectations for higher interest rates,
since securities account for ~50% of earning assets."
The analyst estimates that Bok Financial will earn $4.68 a share during 2012, followed by 2013 EPS of $4.33.
Interested in more on BOK Financial? See TheStreet Ratings' report card for this stock.
Shares of Signature Bank of New York, N.Y, closed at $61.01 Tuesday, returning 2% year-to-date, following a 20% total return during 2011. The five-year total return was 87%.
The company had $15.3 billion in total assets as of March 31.
The shares trade for 1.9 times tangible book value, and for 14.5 times the consensus 2013 EPS estimate of $4.21. The consensus 2012 EPS estimate is $3.67.
Signature Bank's ROA has ranged from 1.13% to 1.23% over the past five quarters.
Guggenheim analyst David Darst on Tuesday upgraded Signature Bank to a "Buy" rating from a neutral rating, with a price target of $71, "given its attractive valuation and catalysts for continued robust organic growth driven by core business and the new specialty and
commercial and industrial lending teams hired in 1Q12."
Darst said that "25-30% loan growth in 2012 and 2013 is attainable given recent
commercial real estate volume and the addition of specialty lending and C&I teams."
The analyst expects that Signature Bank's "EPS will grow at a 21% three-year
compound annual growth rate from 2011 to 2013," and that the company will earn $3.71 a share this year, followed by 2013 EPS of $4.35.
Interested in more on Signature Bank? See TheStreet Ratings' report card for this stock.
>>To see these stocks in action, visit the
portfolio on Stockpickr.
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.