NEW YORK ( TheStreet) -- Although plenty of investors question the value of sell-side sock analysis it remains a valuable tool for investors looking to compare performance during a volatile recovery. While it often does not occur, investors are well-advised to periodically ask their brokers to provide analyst reports for every stock they hold. It never hurts to have a variety of opinions, and it is especially important to consider a variety of thoughts about a particular stock and the industry you are considering. Stock analysts also have more time and means to properly cover an industry and particular players than most investors do. At this point in the economic cycle, for example, bank stock analysts have moved away from focusing on valuing stocks against tangible book value to considering valuation against "normalized earnings," which are what a bank is expected to earn after earnings are no longer hurt by outsized provisions for loan losses or boosted by the release of loan loss reserves. Analysts also have to look beyond the "noise" of headlines related to the mortgage foreclosure mess. Other ways that analysts can help bank stock investors at this point in the cycle are in guaging a "floor" for a stock, when considering short-term risk to earnings from regulatory factors including the Federal Reserve's coming rules to limit debit card interchange fees, or when considering take-out valuations. The former was discussed as part of TheStreet's recent look at 10 Banks with Lower Earnings on Tap . A recent example of a sell-side analyst expressing conviction on a takeout valuation was Morgan Keegan analyst Robert Patten's recent report saying that Texas Capital Bancshares ( TCBI) would command a 40% takeout premium.
was anything to" the rumors of a possible sale by KeyCorp, but among "a limited pool of potential acquirers," he included U.S. Bancorp as "a natural buyer given market overlap and the potential for USB to reduce KEY's ~70% efficiency ratio," but noted that U.S. Bancorp might also "have an interest in Regions." He also said the "alleged entry of Toronto Dominion Bank ( TD) into the mix is conceivable, especially given TD's push to build its U.S. banking presence," and that a sale to PNC Financial ( PNC) "is not inconceivable, though divestitures in northern Ohio might be so heavy as to preclude a deal." Davis said that "neither management team seemed eager to acquire," with "pending regulatory changes that were described as a decade's worth of change compressed into 12 months," among the reasons for their preference for organic expansion. The Guggenheim report's comparison of valuation and earnings metrics is an excellent example of a tool provided by sell-side analysts that helps investors make quick comparisons between investment choices. The forward price-to-earnings ratio based on Guggenheim's 2012 earnings estimate is 13.9 for KeyCorp and 11 for Huntington. These compare to a median forward P/E of 13.4 for 13 regional and super-regional bank holding companies. Among the regionals in the report, the cheapest by forward P/E based on the 2012 estimates is BB&T ( BBT) at 10.6 and the most expensive is Comerica ( CMA) at 15.2 times Guggenheim's 2012 earnings estimate. The median forward P/E based on Guggenheim's 2012 estimates for the "big four" of Bank of America, JPMorgan Chase, Citigroup ( C) and Wells Fargo ( WFC) is a much cheaper 9.1. Out of the 19 holding companies covered in the Guggenheim report, PNC Financial had the highest 2010 return on average assets, which was 1.28%. U.S. Bancorp had the highest return on tangible equity, which was 19.2%, and the lowest (best) efficiency ratio of 50%. Wells Fargo had the widest net interest margin (essentially the "spread" between a bank's average yield on earning assets and its average cost for deposits and borrowings) of 4.23%. -- Written by Philip van Doorn in Jupiter, Fla. To contact the writer, click here: Philip van Doorn. To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn. To submit a news tip, send an email to: firstname.lastname@example.org. -- Written by Philip van Doorn in Jupiter, Fla.