5 Banks Stocks That Trade at a Premium Over Wells Fargo (Update2)

Updated with closing stock prices.

NEW YORK ( TheStreet) -- Bank stocks have been rallying in 2012 as investors chase beaten down stocks on the hopes that they will surge the most if macro-economic concerns ease.

In fact, bank stocks have gained so much in recent months that the sector is no longer "fundamentally undervalued" according to KBW analysts.

When it comes to the blue-chip financial stocks, Wells Fargo ( WFC) enjoys the strongest valuations in the sector. The stock trades at 9.4 times its expected 2012 earnings per share and 172.6% of its tangible book value per share.

Wells Fargo's ROA has ranged between 1.11% and 1.27% over the past year, for the best and most consistent earnings performance among the "big four" U.S. bank holding companies. Its 2011 return on asset ratio of 1.28% is superior to that of JPMorgan Chase ( JPM), which generated a 0.86% return.

Wells' strong earnings beat in the fourth quarter of 2011 also has analysts convinced that it deserves its strong premium. With a growing share in the mortgages business and strong capital that gives it the flexibility to raise dividends or make acquisitions, the stock is now the gold standard among the big bank stocks.

So which stocks trade at a premium to Wells Fargo? Such stocks should presumably hold an equally consistent track record in profitability, have strong capital flexibility and show an ability to grow organically as well through loan growth.

TheStreet shortlisted five stocks, using Highline FI, that trade at a premium to Wells Fargo both on a price-to-2012 earnings ratio basis as well as on a price-to-tangible book value basis. While some stocks have been standout performers in the crisis, not all stocks might be able to justify their premium.

The following are the five stocks ranked in the order of ascending price-to-tangible book value.

5. New York Community Bancorp

Shares of New York Community Bancorp ( NYB) have gained a modest 1.7% in 2012 and is still down over 35% over a one-year period.

The bank operates in the New York multi-family real estate market and has grown significantly through acquisitions.

New York Community Bancorp shares have been under pressure on concerns that it may not be able to maintain its significant dividend payout ratio.

But the bank has maintained its quarterly dividend of 25 cents per share for 32 straight quarters.

The stock trades at 12.2 times its 2012 consensus earnings per share, based on Factset estimates and at 1.82 times its tangible book value. While it looks expensive relative to the sector on those metrics, it is very attractive on dividend yield, which hovers at nearly 8%.

Return on assets in 2011 fell to 1.17% from 1.29% in 2010.

The outlook for the stock is mixed. "Looking forward, continued NIM net interest margin compression will make material earnings growth challenging until rates are higher, which seems unlikely in the near term, unless the company finds an attractive acquisition target," FBR Capital Market analysts wrote in a report following its fourth quarter results. " Still, we expect NYB to earn its dividend, and its yield is attractive in a low rate environment...NYB has pristine credit, sizable capital ratios, strong profitability and an attractive 7.8% dividend."

11 analysts rate the stock a buy or outperform, 10 analysts have a neutral rating on the stock, while one analyst rates it an underperform.

Shares of New York Community Bancorp closed at $12.54 on Tuesday.

4. East West Bancorp

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Shares of East West Bancorp ( EWBC) are up more than 12% in 2012 and are flat over a one-year period.

The Pasadena, Calif. Bank which caters to Asian American customers reported fourth-quarter earnings of $64.5 million, or 43 cents a share, increasing from $60.7 million, or 41 cents a share in the third quarter, and $32.2 million, or 22 cents a share, in the fourth quarter of 2010.

The company announced on Jan. 20 that it would double its quarterly dividend during the first quarter, to 10 cents a share. Based on the new payout, the forward dividend yield on the shares is 1.8%.

It also announced a new stock repurchase authorization, to buy back up to $200 million worth of common shares.

Shares trade at 12.5 times its Factset consensus 2012 earnings per share estimates and at 1.83 times tangible book value per share. The bank's return on assets in 2011 came in at 1.14%.

RBC Capital Markets analyst raised his 2012 estimates for the stock following results on expectations of higher margins and buybacks. "While the stock trades at a well-deserved premium, we continue to view it as a solid long-term core holding," analyst Joe Morford wrote.

Eight analysts rate the stock a buy or outperform, while an equal number maintain a hold rating. There are no sell ratings on the stock.

Shares of East West Bancorp gained 0.4% to close at $22.32 Tuesday.

3. BB&T

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Shares of Winston-Salem, North Carolina-based BB&T ( BBT) are up about 15% in 2012 and about 1% higher over a one-year period.

BB&T trades at about 12 times 2012 consensus earnings per share and 1.87 times book value. Return on assets in 2011 was 0.82%.

The regional bank's growth in the last two decades has been largely fueled by acquisitions. It recently announced the purchase of BankAtlantic, which is expected to add $3.3 billion in deposits, $2.1 billion of loans and 78 branches in Southeastern Florida.

The bank also announced last week the purchase of the life and P&C insurance operating divisions of Roseland, N.J.-based Crump Group from J.C. Flowers, which is expected to add $300mn in annual revenue.

Barclays Capital analyst Jason Goldberg recently upgraded the stock to equal weight from underweight, citing incrementally positive net interest margin outlook, dividend policy and acquisition discipline. "Above peer valuation, its recent outperformance, and continued, albeit less so, acquisition risk" were reasons why the stock did not make the buy rating.

"We expect BBT to be one of handful of regional banks under coverage to (organically) grow net interest income (above-average loan growth) and fee income (insurance, specialty business) in 2012, while lowering expenses (re-optimization project plus lower credit-related costs) and its loan loss provision (lower NPA/NCO ratios, further loan loss reserve release)," the analyst wrote in a note. "Additionally, we expect BBT to increase its dividend by roughly 35% in mid-March, which implies a 35% payout ratio, making it the only bank under coverage to have a dividend payout ratio ahead of the Fed's guidance of under 30%."

If BB&T does increase its dividend to that extent, that would imply a dividend yield of 3% in this environment.

13 analysts rate the stock a buy or outperform, 21 a hold, and 2 a sell or underperform.

BB&T saw its stock gain 2.4% to $29.52 on Tuesday.

2. M&T Bank

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Shares of Buffalo, New York-based M&T Bank ( MTB) are up 6% year-to-date, but are still down 7% over a one-year period.

The company owes $230 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP, in December 2008, plus an additional $151.5 million in TARP money that was originally provided to Provident Bancshares, which M&T acquired in May 2009.

The management has said it would like to pay the $380 million as soon as possible.Deutsche Bank analyst Matt O'Connor estimates the bank could raise $150 million in common equity to redeem the bailout funds but says that scenario might be unlikely.

The Wilmington Trust acquisition could also offer additional synergies in the second half, the analyst said.

The stock trades at 12.4 times its 2012 consensus earnings per share and at 2.14 times tangible book value per share, placing it among the most richly valued stocks on a price to tangible book basis. The dividend yield is strong at 3.5%.

Return on assets was 1.16%, up from 1.08% in 2010.

Only six out of 27 analysts rate the stock a buy, while the balance maintain a neutral rating.

Shares finished up 0.5% at $81.37 on Tuesday.

1. U.S. Bancorp

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Shares of U.S. Bancorp ( USB) are up 8% year to date and 6% higher over a one-year period.

The regional bank has been a solid performer on loan growth, with business lending surging 5.6% in the fourth quarter. CEO Richard Davis said during the conference call that the high growth rate would not be repeated in subsequent quarters.

Still Morgan Stanley analysts say investors should pick stocks such as U.S. Bancorp for their "low earnings volatility" and "rising payouts".

The stock trades at nearly 11 times its 2012 earnings per share based on consensus estimates and at 2.64 times its tangible book value per share.

The bank had a return on total assets of 1.50% in 2011, higher than Wells' 1.28%.

FBR Capital analysts believe the valuations are justified. "We believe that management's conservative stance, USB's diverse platform, and the company's significant C&I and auto lending businesses have positioned USB to thrive in any economic environment," he wrote in a report.

21 analysts rate the stock a buy, 12 analysts have a hold rating while two analysts rate the stock a sell or underperform.

Shares of U.S. Bancorp gained 1% to $29.45 on Tuesday.

>>To see these stocks in action, visit the 5 Banks Stocks That Trade at a Premium Over Wells Fargo portfolio on Stockpickr.

--Written by Shanthi Bharatwaj in New York

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