NEW YORK (
) -- JPMorgan analyst Steven Alexopoulos said on Wednesday that bank stock investors should consider locking in gains, heading into first-quarter earnings season, and named
he would "avoid."
The analyst said that "with bank stocks above fair value," it was " a good time to lock in gains in front of the mediocre 1Q12 ahead."
Bank stocks have had an amazing run so far this year, with the
KBW Bank Index
rising 27% year-to-date through Tuesday's close at 49.90, following a 25% drop during 2011.
Two of the largest U.S. bank holding companies are still trading at sharp discounts to book value and very attractive price multiples to forward earnings estimates, despite runaway year-to-date returns:
- Shares of Bank of America (BAC) - Get Report closed at $9.49 on Tuesday, returning 71% year-to-date, following an epic 58% decline during 2011. The shares still trade for just 0.7 times the company's Dec. 30 tangible book value of $12.95, and for a relatively low nine times the consensus 2013 EPS estimate of $1.06, among analysts polled by Thomson Reuters. The consensus first-quarter EPS estimate for BAC is 12 cents, with a full-year 2012 estimate of 68 cents.
- Citigroup (C) - Get Report closed at $36.37 Tuesday, returning 38% year-to-date, following last year's 44% decline. Like Bank of America, Citi's shares are heavily discounted, at just 0.7 times the Dec. 30 tangible book value of $49.81. The shares trade for eight times the consensus 2013 EPS estimate of $4.70. Analysts expect the company to post first-quarter EPS of 99 cents, and EPS of $4.08 for all of 2012.
Turning back to the small and mid-cap names, Alexopoulos said that following a 6% increase in average annual loans during the fourth quarter for the banks covered by JPMorgan, "we look for 3% annualized growth in 1Q on continued
commercial and industrial lending strength," and for net interest margins to narrow, "although curve steepening and higher mortgage rates could mitigate sec yield pressure."
The analyst said that for "from current valuation levels, for the stocks to be big outperformers vs. the market, we would need to see either (1) loan growth start to make a "V" type recovery or (2) the market would need to believe short-term rates were moving higher in 2013," with JPMorgan seeing "very low odds for either of these potential catalysts to materialize."
"On the flip side," Alexopoulos said, "for the group to materially underperform from here, we think we would need to see either (1) a string of disappointing economic reports or (2) the yield curve flatten," and with "all eyes on the slope of the yield curve," a potential further round of quantitative easing by the Federal Reserve "is a risk factor to current valuations," and "consequently, given the sector run, we would lock in profits."
Saying the "sector positioning favors" the following three names "short," JPMorgan said it "would avoid" the following three small to mid-cap banks, because of "structural challenges to earn above their cost of capital," or "acquisition focused capital return stories."
are rated "Underperform" by JPMorgan.
of Lake Success, N.Y., closed at $10.00 Tuesday, returning 20% year-to-date, following a 36% decline during 2011.
The shares trade for 0.9 times tangible book value, according to HighlineFI, and for 15 times the consensus 2013 EPS estimate of 65 cents. The consensus first-quarter EPS is 12 cents, with a full-year 2012 estimate of 53 cents.
Based on a quarterly payout of 13 cents, the shares have dividend yield of 5.20%.
The company had $17 billion in total assets as of Dec. 30.
Astoria has suffered in the prolonged low-rate environment, with its net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- narrowing to 2.20% during the fourth-quarter, from an already low 2.32% a year earlier.
Alexopoulos on Wednesday raised his price target for Astoria by a dollar, to $9.00. The analyst estimates that Astoria will post core first-quarter earnings of 11 cents, followed by EPS of 50 cents for all of 2012, and 2013 EPS of 56 cents.
The analyst said that "despite strong pipelines in both multifamily and 1-4 family categories,
loan originations will likely be offset by AF selling production given continued low mortgage rates," and that he expects the net interest margin "to contract another 7 bps to 2.13% as asset yield pressure more than offsets an expected 3 bps reduction in CD costs."
While saying that "we applaud management's efforts to maintain a flat level of expenses in 2012," Alexopoulos reiterated his "Underperform" rating for Astoria, "given anticipated headwinds, we continue to see profitability levels not only remaining well below peers in 2012, but also well below its cost of capital."
Interested in more on Astoria Financial? See TheStreet Ratings' report card for this stock.
of Tupelo, Mo., closed at $13.53 Tuesday, returning 23% year-to-date, following last year's 30% decline.
The shares trade for 1.2 times tangible book value, and for 15 times the consensus 2013 EPS estimate of 93 cents. Analysts polled by Thomson Reuters expect the company to post first-quarter EPS of 16 cents, with earnings of 70 cents a share, for all of 2012.
BancorpSouth in January closed a public offering of 10,952,381 common shares at a price of $10.50, raising $109.3 million, before expenses.
The company had $13 billion in total assets as of Dec. 30.
Alexopoulos's price target for BancorpSouth is $12, and he matches the consensus with a first-quarter EPS estimate of 16 cents, while estimating full-year earnings of 71 cents for 2012, followed by 2013 EPS of 92 cents.
The analyst said on Wednesday that the company "ended the final quarter of 2011 on a mixed note, with a mixture of both positive and negative indicators pointing in no clear direction for 2012," and that "although progress was made on the credit front," there was "still ample wood to chop, including
a nonperforming assets ratio that ended 2011 at 3.8%."
The analyst said that "while downside risk may be abating, given a growth picture that is likely to trail peers and profitability level that is unlikely to exceed the bank's cost of capital for several years, we see fair valuation of BXS shares near tangible book value," implying significant downside for the shares.
Interested in more on BancorpSouth? See TheStreet Ratings' report card for this stock.
of Jackson, Miss., closed at $25.04 Tuesday, returning 4% year-to-date, following a 2% return during 2011.
The shares trade for 1.9 times tangible book value, and for 15 times the consensus 2013 EPS estimate of $1.66. The consensus EPS estimate for the first quarter is 39 cents, with a full-year estimate of $1.59 a share for 2012.
Based on a quarterly payout of 23 cents, the shares have a dividend yield of 3.67%.
Trustmark had $9.7 billion in total assets as of Dec. 30.
Alexopoulos's price target for Trustmark is $23.50, and he matches the consensus with a first-quarter EPS estimate of 39 cents, estimating earnings of $1.63 a share for all of 2012, followed by 2013 EPS of $1.61.
The analyst on Wednesday said he expected the company's "organic loan growth to be flat in 1Q (excluding the impact of $117 million in loans acquired in the acquisition of Bay Bank &Trust of Panama City, FL)," and that Trustmark's net interest margin would "see continued pressure, as we forecast a 22 bps sequential decline in the margin to 4.06%, but still well ahead of peers expected to average a NIM of 3.61%."
While the company "continues to post
returns on average equity that are much stronger than the average bank, reported at 11.3% in 4Q, we believe the ~20% premium valuation of the shares appropriately reflects above peer profitability levels," Alexopoulos said, adding that "with TRMK expected to maintain flattish profitability levels in the backdrop of peer banks seeing modest improvement, we expect the premium valuation of TRMK shares to narrow in 2012."
Interested in more on Trustmark? See TheStreet Ratings' report card for this stock.
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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.