NEW YORK (
has identified a select list of
with the most upside based on consensus price targets set by analysts.
The largest banking names are in flux following the completion of
stress tests, the announcement of plans by
to raise common equity and repay government bailout funds received through the Troubled Assets Relief Program, or TARP; dividend increases by
; and new or increased share buyback authorizations by JPMorgan, State Street, U.S. Bancorp,
and BNY Mellon.
Bank of America
said the Federal Reserve had
to begin returning capital to shareholders, but planned to submit another plan soon, to begin returning capital to shareholders in the second half of this year.
This week, many analysts have been revising their 2011 and 2012 earnings estimates, raising price targets and there have been a number of ratings upgrades, so this is a good time to take a look at consensus price targets and see which banks analysts believe have the most upside for their shares over the next twelve months.
To come up with our list, we isolated the 10 bank and thrift holding companies with the most upside based on mean price targets among analysts polled by Thomson Reuters. We pared down the list by limiting our selections to stocks with average daily trading volume of more than 50 thousand shares, with share prices above a dollar and with at least two buy recommendations from analysts.
All data was provided by SNL Financial as of Monday's market close.
The list includes two of the "big four," Citigroup and Bank of America. Citigroup's shares are likely to face some pressure over the short term, as the company on Monday announced a 1-for-10
, set to take place after the market close on May 6.
For JPMorgan Chase, the mean price target is $55.42, implying 21% upside from Monday's market close at $45.63. Richard Bove of Rochdale Research is even more enthusiastic, with a $60 price target, saying after
announced its deal to purchase T-Mobile from
Deutsche Telekom AG
that as AT&T's advisor on the merger, JPMorgan could eventually earn as much as
from the deal.
For Wells Fargo, the mean price target is $38.28, implying 20% upside from Monday's close at $31.88.
Let's move on to our select list of 10 liquid bank stocks with the most upside potential:
10. 1st United Bancorp
1st United Bancorp
of Boca Raton, Fla. closed at $6.85 Monday, down 16% from a year earlier. Based on the mean price target of $8.42 among analysts polled by Thomson Reuters, the shares have 23% upside over the next twelve months.
The company had $1.3 billion in total assets as of December 31, with 16 branches. 1st United purchased the failed
Federal Deposit Insurance Corp.
1st United Bancorp earned $2.2 million, or 9 cents a share in 2010, compared with $2.2 million, or 17 cents a share in 2009. The consensus 2011 earnings estimate among analysts polled by Thomson Reuters is 13 cents a share. For 2012, the consensus EPS estimate is 31 cents.
The company on Tuesday closed a public offering of 5 million common shares priced at $6.50 a share, netting roughly $30.5 million after discounts, commissions and other expenses.
Five of the six analysts covering 1st United rate the shares a buy, while the remaining analyst has a neutral rating. Saying that the company was reloading "the capital cannon" in anticipation of an M&A boom in Florida, Sterne Agee analyst Peyton Green on March 17 reiterated his buy rating on the shares with a $7.50 target, saying that 1st United Bancorp "can emerge as a meaningful commercial bank in
southeast Florida and strong small cap performer over the next couple of years."
of Chevy Chase, Md. closed at$6.98 Monday, returning 23% % from a year earlier. Based on the mean price target of $8.42 among analysts polled by Thomson Reuters, the shares have 23% upside.
The company had $9.5 billion in total assets as of December 31, focusing on small and middle market business lending nationwide, while gathering deposits through 21 branches in southern and central California. During 2010, CapitalSource transitioned away from investments in healthcare facilities, having sold 103 long-term care facilities to Omega Healthcare Investors during the second quarter. The company still focuses on healthcare real estate financing, as well as equipment finance, technology, multifamily lending, and a new professional practice lending group, which finances the acquisition of dental and veterinary practices.
For 2010, CapitalSource reported a net loss of $109.3 million, or 34 cents a share, compared to a net loss of $869 million, or $2.84 in 2009. The consensus among analysts is for the company to earn 40 cents a share in 2011 and 47 cents a share in 2012.
In its 2010 10-K report filed with the
Securities and Exchange Commission
on February 28, CapitalSource disclosed that it had entered into an agreement with the FDIC to maintain a total risk-based capital ratio of 15% for its main banking subsidiary,
. The bank's total RBC ratio was 18.13% as of December 31.
Eight of the 13 analysts covering CapitalSource rate the shares a buy, while the remaining analysts all have neutral ratings on the shares. Following the company's fourth-quarter earnings announcement, Henry Coffey of Sterne Agee reiterated his buy rating on the shares with an $8.75 price target, saying CapitalSource's management expected $1.8 billion in loan originations in 2011 and that the company was making "continued progress on all fronts."
8. CenterState Banks
of Davenport, Fla. closed at $6.98 Monday, returning 21% over the previous year. Based on analysts' mean price target of $8.60, the shares have 23% upside.
The company had $2.1 billion in total assets and 53 offices in central Florida as of December 31, growing its balance sheet 18% during 2010, as acquired three failed Florida banks, including
of Aventura, Independent National Bank of Ocala and Community National Bank of Bartow,
For 2010, CenterState reported a net loss of $5.5 million, or 20 cents a share, improving from a net loss of $6.2 million, or 47 cents a share in 2009. The consensus earnings estimate for 2011 is a net loss of 10 cents a share, followed by earnings of 21 cents a share in 2012.
Three of the eight analysts covering CenterState Banks rate the shares a buy, while the remaining analysts all have neutral ratings. Kevin Reynolds of Wunderlich Securities cut his rating to a hold on February 8 and lowered his price target to $8 from $12, saying that while the company was "abundantly capitalized, with above-average long-term growth potential in demographically favorable Florida markets that are target-rich with acquisition opportunities," elevated operating expenses from "ongoing investments in the long-term earnings capacity of the franchise along with persistent asset quality challenges force us to the sidelines."
Citigroup's shares closed at $4.43 Monday, returning 14% over the previous year. Based on analysts' mean price target of $5.64 -- irrespective of the coming
- the shares have 27% upside.
Like the other members of the "big four" U.S. bank holding companies, Citi's shares are relatively cheap to forward earnings estimates, trading for 10.3 times the consensus EPS estimate of 43 cents for 2011 and 8.4 times the 2012 EPS consensus of 53 cents.
Before and after the 1-for-10 reverse split to be completed after the market close on May 6, investors may have a buying opportunity, as a "reverse split of this magnitude reduces the number of potential buyers. It knocks many retail buyers out," according to Richard Bove of Rochdale Securities. While Bove clearly dislikes the reverse split, he has maintained his buy rating and $7 price target on the shares, because the "action does not adjust the operations of the company in any fashion."
Out of 19 analysts covering Citigroup, nine rate the shares a buy, eight have neutral ratings and two analysts recommend selling the shares.
6. State Street
Shares of Boston's State Street Corp. closed at $43.92 Monday. Based on the mean price target of $56.38 among analysts polled by Thomson Reuters, the shares have 28% upside over the next twelve months.
Following the completion of the Federal Reserve's stress tests, the company announced it would increase its quarterly dividend by 17 cents to 18 cents a share, and authorized $675 million in share buybacks for 2011.
State Street earned $1.5 billion, or $3.09 a share in 2010, improving from a net loss to common shareholders of $2 billion, or $4.31 a share in 2009. The consensus earnings estimates are for the company to earn $3.66 a share in 2011 and $4.26 a share in 2012.
Analyst sentiment for State Street is very strong, with 15 out of 19 analysts rating the shares a buy, while the other four analysts have neutral ratings.
5. Bank of America
Shares of Bank of America closed at $14.05, down 16% over the previous year. Based on the mean price target among analysts, the shares have 31% upside.
Following the completion of the Federal Reserve's stress tests on 19 large U.S. financial holding companies and subsequent announcements of
by several large banks, Bank of America on Wednesday that the Federal Reserve had "objected to the proposed increase in capital distributions for the second half of 2011," that were included in the company's capital plan submitted in January.
Bank of America said it would submit a revised capital plan, and would "to work with the Federal Reserve and intends to seek permission for a modest increase in its common dividend for the second half of 2011."
With all the "piling on" from mortgage foreclosure problems, litigation reserves and regulatory matters, Bank of America's shares are exceedingly cheap to forward earnings estimates. The forward price-to-earnings ratio was 10.6 based on Monday's closing price and a consensus 2011 earnings estimate of $1.33 a share, but the forward P/E was only 7.5, based on the $1.33 EPS consensus for 2012.
Following the company's announcement on Wednesday, Anthony Polini of Raymond James reiterated his "strong buy" rating for Bank of America, saying "weakness in the stock" following the company's announcement of the Fed's rejection of the capital plan presented "an excellent buying opportunity," and that the shares offered "tremendous upside potential." Based on Polini's price target of $24, that upside potential would be 71% from Monday's close.
4. Oriental Financial Group
Oriental Financial Group
of San Juan, Puerto Rico, closed at $12.37 Monday, don 2% from a year earlier. Based on the mean price target of $16.30, the shares have 32% upside.
The company had $7.3 billion in total assets as of December 31, operating 30 branches throughout Puerto Rico, including nine that were acquired in connection with Oriental Financial's purchase of the failed
from the FDIC last April.
For 2010, Oriental Financial reported a net loss of $18.2 million, or 50 cents a share. The results included a "deemed dividend" of $22.7 million that was recorded when the company converted preferred shares to common shares at a below-market price. In 2009, the company earned $18.1 million, or 16 cents a share. The consensus EPS estimates are 98 cents for 2011 and $1.59 for 2012.
Three of the five analysts covering Oriental Financial Group rate the shares a buy, while the other two analysts have neutral ratings.
3. Park Sterling Corp.
Park Sterling Corp.
of Charlotte, N.C. closed at $4.89 Monday, down 22% from a year earlier. Based on analysts' mean price target of 7.08, the shares have 45% upside over the next twelve months.
The company was founded in 2006 and had $616 million in total assets as of December 31. Park Sterling has major expansion plans, saying on Tuesday that it had hired two veteran bankers to lead its "expansion into the Research Triangle market of North Carolina," as part of its planned expansion in its home state "across the Carolinas and Virginia."
With a Tier 1 leverage ratio of 41.85% as of December 31, the company has a very significant capital base for a large expansion.
Park Sterling reported a net loss of $7.9 million, or 58 cents a share for 2010, which included a $17 million provision for loan losses. In 2009, the company earned $577 thousand, or 12 cents a share. The consensus EPS estimate for 2011 is a loss of 21 cents, followed by a loss of two cents for 2012, as the company works through problem loans and seeks to expand organically and take advantage of M&A opportunities in its desired market footprint.
All three analysts covering Park Sterling rate the shares a buy. While he noted "disappointment" with significantly higher nonperforming assets in the fourth quarter, KBW's Jefferson Harralson reiterated his "outperform" rating on the shares, while lowering his price target to $6.75.
2. Southwest Bancorp
of Stillwater, Okla. closed at $13.74 Monday, returning 49% over the previous year. Based on the mean price target of $20, the shares have 46% upside.
The company had $2.8 billion in total assets as of December 31, with 25 full-service offices in Oklahoma, Texas and Texas.
Southwest Bancorp owes $70 million in TARP money and raised $57.5 million in common equity last April.
Southwest reported 2010 net income available to common shareholders of $12.8 million, or 71 cents a share, improving from $8.8 million, or 60 cents a share, in 2009. The main factor in the earnings improvement was an increase in net interest income to $107.3 million from $98.7 million, as the company's net interest margin - the difference between the average yield on loans and investments and the average cost for deposits and borrowings - expanded to 3.67% from 3.38%.
The consensus earnings estimate for 2011 is 61 cents a share, increasing to 82 cents a share for 2012.
Two of the three analysts covering Southwest Bancorp rate the shares a buy, while John Rodis of Howe Barnes Hoefer & Arnett has a neutral rating, saying in January after Southwest Bancorp announced its fourth quarter results that the company is "a higher risk story" because of its level of nonperforming assets, although he took comfort that the company's "operating markets continue to hold up relatively well which should help collateral values."
1. Popular, Inc.
of Hato Rey, Puerto Rico, closed at $3.00 Monday, up 10% from a year earlier. Based on analysts' mean price target of $4.43, the shares have 48% upside over the next year.
Popular had $38.7 billion in total assets as of December 31. The company purchased the failed
from the FDIC last May, putting in the strongest market position for deposits in Puerto Rico.
The company owes $935 million in TARP money, having converted the preferred shares held by the Treasury to trust-preferred shares in the third quarter of 2009. That move netted Popular a huge gain, lowering its accumulated deficit by $485 million because of an assumed discount rate of 16%, taking into account the much greater dividend rate the company would have paid if it had offered trust-preferred shares in the open market.
Popular reported a 2010 net loss to common shareholders of $54.6 million, or 6 cents a share, following net income of $97.4 million, or 29 cents a share in 2009. The 2010 provision for loan losses was a very high $1 billion, although it declined from $1.4 billion the previous year.
The consensus earnings estimates are 23 cents a share for 2011 and 28 cents a share for 2012.
Five out of six analysts covering Popular rate the shares a buy, while the remaining analyst has a neutral rating. Adam Barkstrom of Sterne Agee reiterated his buy rating and $5 target for the shares on March 2, saying "there is material upside from current levels as additional progress on the problem asset disposition front and the positive restatement on the FDIC assets further enhance franchise value and help clear the way for a return to more material and sustainable earnings." The FDIC assets are loans acquired from Westernbank that are covered by FDIC loss-sharing agreements.
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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.