COLUMBUS, Ga. (
) - On a strong day for banks stocks following the
led the pack, with shares up 8% in afternoon trading to $2.34.
Monday's action followed an enthusiastic report on the company from Thomas Brown, who manages
Second Curve Capital LLC
, a hedge fund focusing on financial services.
In his report, Brown said that after meeting with the company's management, he believes Synovus will become profitable in the first quarter of 2011, despite the fact that 18 of 22 analysts covering the company believe it will post losses full-year losses for 2011.
Driving the improvement in earnings will be a continuing decline of the company's quarterly provision for loan losses to $100 million. The provision for the second quarter was $299 million, declining for the previous four quarters from a peak of $631.5 million a year earlier.
The company posted a second-quarter net loss to common shareholders - factoring-in $14.4 million in dividends paid on preferred shares held by the U.S. Treasury for $967.9 million in bailout funds received through the Troubled Assets Relief Program, or TARP -- of $242.6 million, or 36 cents a share. In comparison, the company lost $229.8 million, or 47 cents a share, the previous quarter and reported a net loss to common shareholders of $601.2 million, or $1.82 a share, for the second quarter of 2009.
Brown believes the company will eventually achieve a "normalized E.P.S." or 40 cents a share some time in 2012, implying a share price of $4.80 to $6.00, based on a price-to-earnings multiple ranging between 12 and 15 times earnings.
The consensus among analysts polled by Thomson Reuters is for Synovus to lose 13 cents a share for 2011 and earn 30 cents for 2012, which isn't far off Brown's mark. Shares closed at $2.18 Friday, or 7.3 times the consensus estimate for 2012. Even though few analysts have buy ratings on the shares, it would seems the analysts as a group have come to similar conclusions to Brown, as they are cheaply priced to the 2012 consensus estimate, implying tremendous upside for long-term investors.
According to a filing with the Securities and Exchange Commission, Synovus was the fund's largest holding as of June 30, followed by
Western Alliance Bancorporation
. Smaller positions include
Fifth Third Bancorp
Capital One Financial
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.