VINELAND, N.J. ( TheStreet) -- Investors considering a new position in Sun Bancorp ( SNBC) are looking at a long-term play with plenty of upside potential as the bank builds a capital war chest with help from Wilbur Ross and considers acquisitions. Although Sun Bancorp is considered likely to expand through acquisitions over the next year, it was included among the ten holding companies profiled in TheStreet's 10 Bank Acquisition Targets, since the consensus among analysts polled by Thomson Reuters is for the company to post a full-year loss for 2011, and shares were trading for just 0.5 times tangible book value when they closed Wednesday at $5.08. Among the group of ten holding companies, Sun Bancorp is the clear favorite among analysts, with four out of five analysts covering the company rating the shares a "Buy." Sun Bancorp no longer owes the government for bailout money received through the Troubled Assets Relief Program, or TARP, having repaid the Treasury over a year ago. The company also received a commitment from an investor group led by Wilbur Ross for a $100 million capital infusion, which will be completed in two installments following regulatory approval. As part of the deal, Ross - who will become Sun's largest shareholder - will also join the company's board of directors. The company has estimated that once the new capital is received, its tier 1 leverage ratio will be at least 11.75% and its total risk-based capital will be at least 14.00%, far exceeding the 5% and 10% required for most banks to be considered well capitalized by regulators. Ross said back in July that New Jersey had too many banks and the Sun Bancorp deal would be his first of many in the state. Sterne Agee analyst Matthew Kelly upgraded his rating on Sun Bancorp to a "Buy" with a 12-month price target of $5 after the investment deal with Ross was announced, saying the investment would "move the company from a position of weakness to strength." He also said there was "ample opportunity" for the company to "consolidate both healthy and struggling banks" in New Jersey and eastern Pennsylvania. After the company reported second-quarter earnings results which included a rise in nonperforming assets, Kelly reiterated his rating and $5 price target and also said the company would eventually achieve "normalized earnings" ranging from 40 to 50 cents on an annual basis. Kelly is obviously thinking long term with a buy rating and a 12-month target below the current price.
A play on Sun Bancorp is obviously a play on confidence in Ross's ability to make valuable acquisitions on the cheap and expand the company's profit-making ability. Although the company will be working through problem loans for some time which will delay its return to profitability, the low price relative to the company's June 30 book value is enticing and an investor willing to commit for several years without worrying about day-to-day trading action has a chance to be very well rewarded while riding the coming wave of industry consolidation. P/> -- Written by Philip van Doorn in Jupiter, Fla.
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