Updated with Thursday afternoon stock prices.
NEW YORK (
)--Are there any bank stocks out there Rochdale Securities analyst hates these days?
Not really, it turns out.
"I've taken the sells off everything," Bove says, "You've got a whole bunch of companies like
State Street Corp.
The Bank of New York Mellon Corp.
Bank of America
selling at discounts to their cash values. Even though the companies may not be generating that much in terms of earnings, they definitely are being undervalued at the present time," he says.
Bove is no perma-bull. The veteran analyst calls 'em like he sees 'em, and had to fend off a
for putting it on a list of banks he believed were in the "danger zone." BankAtlantic shares closed at $6 July 11, 2008, the last trading day before Bove's report, and were below $1 on Friday afternoon.
For several months now Bove has been beating the drum on the banks, even arguing in May that
Bank of America
will sextuple by 2015.
(Citigroup is up about 10% while Bank of America has fallen some 15% since that time.)
Despite not having any "sell"s, he does have three "neutral" ratings on the companies he covers. And there are at least four on which he has dropped coverage.
"I figure what the hell: if I don't like them I'm just not going to cover them," Bove says. Still, he thinks many of these companies are likely to be acquired.
Here, then, are the few financial stocks Bove doesn't love.
Greenhill & Co.
Consensus 2011 EPS: $3.43
Market cap: $2.34 billion
grade: B (Buy)
The investment banking advisory company is one of the three stocks on which Bove has a "Neutral" rating. The analyst had mostly positive things to say about Greenhill in an Oct. 4 report in which he upped the price target to $81. However, Greenhill's shares were just below that price at the time of the upgrade and haven't moved much since.
"A change in the rating will be dependent on earnings progress," Bove writes.
Bove's concerns aren't restricted to valuation, however. He also argues in his report Greenhill doesn't share enough information with investors.
"The company does not have conference calls and provides almost no information concerning its balancesheet until the 10Q is published," he writes, while also raising questions about "very generous restricted stock deals with employees."
Greenhill had a merchant banking business which it sold last year, and is now focused exclusively on providing advice to companies--a business Bove says he likes. Bove cites "significant pent-up demand" in M&A.
As of 2PM ET on Thursday, Greenhill shares were trading down 1.42% at $76.56.
Consensus 2011 EPS: $0.28
Market cap: $9.32 billion
grade: Sell (D+)
Bove has a "hold" on Regions and a $7.50 price target, just 20 cents above where the stock closed on Wednesday. With branches throughout the South, but particularly in Alabama and Tennessee, Birmingham, Ala.-based Regions "has one of the best franchises in banking," Bove wrote in a Sept. 16 note. While he argues "the franchise has been in trouble almost since the day it was cobbled together," he adds that he sees signs of a turnaround.
"Regions appears to be increasing prices on its core products and it is doing an excellent job in controlling expenses," Bove writes.
Still, Bove believes profits are quite a ways off for Regions. While the analyst consensus is that Regions will earn 28 cents per share in 2011, Bove projects a four cent loss ahead of a 48 cent gain in 2012.
As of 2PM ET on Thursday, Regions shares were trading down 3.56% at $7.06.
Consensus 2011 EPS: $0.84
Market cap: $13.41 billion
grade: Sell (D+)
Another one of Bove's three "hold" ratings, the analyst's price target compares to a SunTrust's $27.08 trading level mid- Tuesday. SunTrust announced at a conference in September that it would return to profitability in the third quarter, which Bove called "a big step and a big plus."
Still, Bove took issue with the fact that the announcement came at a conference rather than through a preannouncement.
The analyst believes SunTrust has made the right call, however, in reducing its reliance on foreign and brokered funds for deposit-based funding by $14 billion.
"This has lowered liability costs and in turn raises net interest margin," Bove writes.
Bove now wants to know when SunTrust will return its TARP preferred securities to the U.S. government, though he wrote in a Sept. 16 note the company "refuses to discuss the subject."
As of 2PM ET on Thursday, SunTrust shares were trading down 5.99% at $25.12.
Marshall & Illsley
Consensus 2011 EPS: $0.03
Market cap: $3.93 billion
grade: Sell (D+)
Bove has dropped coverage on Milwaukee, Wis.-based Marshall & Illsley, which has exposure to housing bust hotspots Florida and Arizona. At an investor presentation last month, management claimed the bank's loan book is stabilizing and said it has turned its focus to wealth management in seeking to grow revenues.
During the second quarter earnings presentation in July, CFO Greg Smith noted the loan loss provision for the quarter was 25 percent lower than the 2009 quarterly average, and was at its lowest level in nearly two years.
"We expect our provision to continue declining over time," he said.
Smith also said that while he sees"the chance to cross over to profitability in the fourth quarter," the "weak recovery is not helping."
And while Smith suggested "there might be a shot" at fourth quarter profits, he cautioned that "the odds of that are lower than they were at the start of the year."
As of 2PM ET on Thursday, Marshall & Illsey shares were trading down 4.39% at $6.97.
First Horizon National Corp.
Consensus 2011 EPS:$0.49
Market cap: $2.67 billion
grade: Hold C-
Bove has dropped fromal coverage on First Horizon, though it was one of just two stocks that posted big gains in the year after Bove published his controversial "danger zone" note in July, 2008 that led to BankAtlantic's lawsuit. Shares of First Horizon shot all the way up from $6.22 at the time Bove published his warning to touch $14.27 over the next two months but have lost ground since then and were at $11.44 in late trading Wednesday. The Memphis, Tenn.-based bank managed to earn a penny per share in the second quarter--its first profit after eight straight quarterly losses.
A report from FBR Capital Markets analysts cited improving credit metrics, noting net charge-offs fell 27%, or $50 million to $133 million, while and nonperforming assets dropped by $90 million to $900 million versus the previous quarter.
First Horizon management believes it has excess capital and is looking for acquisition opportunities, according to a Sandler O' Neill report last month.
As of 2PM ET on Thursday, First Horizon shares were trading down 2.13% at $11.02.
Consensus 2011 EPS: $0.39
Market cap: $7.39 billion
grade: Hold (C-)
Another bank on which Bove dropped coverage, KeyCorp's second quarter profit was its first since the financial crisis. During a conference call with analysts after releasing the results, bank management said credit trends were improving, and that it was focusing on investment management businesses in an effort to boost revenues.
FBR Capital Markets analysts wrote following the earnings release that they earnings potential was their main concern, due to "continued deleveraging and weaker-than-expected net interest margins."
"Given tepid loan demand, we believe that
KeyCorp's balance sheet will likely continue to shrink over the next several quarters, which should weigh on earnings," the report stated.
Debt analysts at
upgraded KeyCorp in August, arguing it is "relatively less exposed to consumer loans than some peers," and has cut construction loan exposure to $3.4 billion from $6.1 billion a year ago.
As of 2PM ET on Thursday, Keycorp shares were trading down 2.29% at $8.10.
Consensus 2011 EPS: $0.37
Market cap: $3.79 billion
grade: Sell (D+)
Zions saw its shares more than triple off their lows in the first four months of the year, peaking at about $30 toward the end of April. Bove no longer covers Zions.
The bank lost 84 cents per share in the second quarter, worse than analysts had estimated. It has been taking steps to strengthen its balance sheet, and has shown some improvement in its distressed loan portfolio. Still, net interest margin--a measure of how much banks earn on their loans relative to borrowing costs--contracted during the quarter, a worrying sign.
The company has undertaken several of what Sandler O'Neill analysts refer to as "unconventional capital raising maneuvers," such as paying $35 million to
in July to transfer the risk from a collateralized debt obligation. That move, along with related interest rate swaps, caused "meaningful" improvement to regulatory capital ratios, but left tangible common equity unchanged, Sandler analysts noted.
As of 2PM ET on Thursday, Zions shares were trading down 3.62% at $21.
Written by Dan Freed in New York
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