5 Bank Stock Pullback Bargains

NEW YORK ( TheStreet) -- Sliding bank stock prices over the past two months have set up some remarkably low forward price-to-earnings multiples for long-term investors to consider.

Using data supplied by Thomson Reuters Bank Insight -- formerly HighlineFI -- TheStreet has identified a list of five actively traded bank stocks trading for less than 8.3 times consensus 2013 earnings estimates, with the largest price declines since March 19, through Tuesday's close.

We used March 19 as a starting date, because that is the day we pulled data for our previous look at bank stocks trading at low forward price-to-earnings multiple.

In the previous story, we pointed out that some of the best-known U.S. banking names were trading at roughly eight times forward earnings. Now they forward P/E's are much lower, for three of the largest U.S. bank holding companies, indicating a possible overreaction by the market.

FIG Partners analyst John Rodis said in march that , "prices tend to overshoot," both on the upside and the downside, and we may be seeing that with JPMorgan Chase ( JPM) -- in the wake of the CEO James Dimon's disclosure last Thursday of a $2 billion second-quarter loss from hedging activity -- which was partially offset by $1 billion in gains on available-for-sale securities. JPMorgan's shares pulled back 11% over the next three trading sessions through Tuesday, and the shares were trading at a forward P/E of less than 6.5. In March they traded for just over eight times the consensus 2013 earnings estimate among analysts polled by Thomson Reuters.

Since March 19, the KBW Bank Index ( I:BKX) declined 10% through Tuesday's close at 44.83.

Bank stocks seem to be following last year's pattern, pulling back after first-quarter euphoria. Investors are understandably skittish over the largest industry names, from fear of a new round of regulatory scrutiny, following JPMorgan's trading loss, as well as the already confusing Volker Rule implementation, lingering mortgage putback demands and the need for banks to continue shoring up their capital levels.

But there is no question that the group is much more strongly capitalized than it was heading into the 2008 banking crisis, and the current panic over JPMorgan Chase could be just what the doctor ordered, for long-term investors methodically building positions. For JPMorgan in particular, the well-timed share repurchases could benefit shareholders greatly.

The following is our list of five actively traded bank stocks trading for less than 8.3 times consensus 2013 earnings estimates, with the largest price declines since March 19, through Tuesday's close. All have seen significant declines for the 52-week period, as you can see in the charts. The stocks are sorted by descending forward P/E:

5. First Niagara Financial Group

Shares of Fist Niagara Financial Group ( FNFG) of Buffalo, N.Y., closed at $8.41 Tuesday, down 1% year-to-date, following a 34% decline during 2011. Based on a quarterly payout of eight cents, the shares have a dividend yield of 3.80%.

The shares trade for 1.1 times tangible book value, according to Thomson Reuters Bank Insight, and for just over eight times the consensus 2013 earnings estimate of $1.03 a share. The consensus 2012 EPS estimate is 88 cents.

First Niagara expects to complete its HSBC ( HBC) branch acquisition on Friday, after which the company will double in size, with roughly 200 branches and 1,200 employees.

Citigroup analyst Josh Levin has a neutral rating on First Niagara, with a $10 price target, and said last month that "over the past 18 months FNFG has been the most aggressive bank in our coverage universe in terms of seeking growth opportunities," through mergers and branch acquisitions, and noted that the company hadn't issued guidance on loan growth or fee income from the HSBC branch acquisition.

In supporting his neutral rating for the shares, Levin said that "on one hand, FNFG trades at a significant discount to its peers on both a P/E and price to tangible book value basis," but that "on the other hand, we think FNFG's rapid expansion entails execution risk," and that "its capital ratios will be below average after it closes the upcoming HSBC deal. On net, we view FNFG'sstock as fairly valued at its current valuation," he said, based on a share price of $9.19 on April 19.

Levin estimates that First Niagara will earn 94 cents a share this year, followed by 2013 EPS of $1.06.

Interested in more on First Niagara Financial Group? See TheStreet Ratings' report card for this stock.

4. Bank of America

Shares of Bank of America ( BAC) closed at $7.30 Tuesday, returning 31% year-to-date, following a 58% decline last year.

The shares trade for a low 0.6 times tangible book value, and for just under seven times the consensus 2013 EPS estimate of $1.05. The consensus 2012 EPS estimate is 71 cents.

It must be a nice change for Bank of America CEO Brian Moynihan to see the anger of the market, financial news media, pundits and politicians directed elsewhere for a change.

Guggenheim Securities analyst Marty Mosby said last week that "given that the discount to tangible book value is related to the eventual loss content related to the mortgage overhang issues, we believe two things are helping BAC position itself such that it will not have to haircut its tangible book value."

The first of the factors that may lead to a recapture of the discount to tangible book value is "the improvement in their profitability -- if you exclude the debit valuation adjustment numbers they earned around 30 cents last quarter." Mosby added that "as their earnings have rebounded and their capital ratios have improved, it becomes less and less likely that BAC will eventually experience a significant reduction in tangible book value."

Mosby's price target for Bank of America is $11, and he estimates that the company will earn $1.01 a share this year followed by earnings of $1.10 a share during 2013.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

3. JPMorgan Chase

Shares of JPMorgan Chase closed at $36.24 Tuesday, returning 11% year-to-date, following a 20% decline during 2011. Based on a quarterly payout of 30 cents, the shares have a dividend yield of 3.31%.

The shares trade for 1.1 times tangible book value, and for 6.5 times the consensus 2013 EPS estimate of $5.54. The consensus 2012 EPS estimate is $4.54.

In the wake of the company's trading loss announcement last Thursday, the shares declined 11% over the next three sessions through Tuesday.

It seems that "everybody wants to join the JPMorgan party," with Reuters reporting on Wednesday that the Federal Bureau of Investigation "had opened an inquiry" into the company's trading loss, as if investigations by the Securities and Exchange Commission and the Department of Justice weren't enough, not to mention the undoubted scrutiny from the Federal Reserve and possible Congressional hearings as the fed struggles to implement the Volcker Rule.

While several analysts have said they expect JPMorgan Chase to curtail its share repurchases in the wake of the trading loss and possible further losses as the company winds down certain hedge positions, Marty Mosby said on Wednesday that share buybacks at lower prices could help "to offset the future impact of losses tied to this event."

Mosby also indicated that the market may have overreacted to JPMorgan's announcement, estimating "hat JPM would have to experience close to $15 billion in pre-tax losses in order to push the share count up enough to pull down the 2013 estimate enough to justify the recent drop in JPM's stock price."

Before JPMorgan announced the trading loss, Mosby "had forecasted that JPM would repurchase approximately 60 million shares per quarter," and said "the savings from this $10 reduction in stock price would be worth $600 million in saved capital," under that scenario, and "in comparison, last week's announced $1 billion in net losses could create a $650 million after-tax loss."

Mosby rates JPMorgan a "Buy," with a $53 price target, estimating the company will earn $4.70 a share this year, followed by 2013 EPS of $5.85.

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

2. Citigroup

Shares of Citigroup ( C) closed at $27.70 Tuesday, returning 6% year-to-date, following a 44% decline during 2011.

The shares trade for 0.6 times tangible book value, and for just under six times the consensus 2013 EPS estimate of $4.71. The consensus 2012 EPS estimate is $4.16.

Barclays analyst Jason Goldberg rates Citi "Overweight," with a $46 price target, and said last week that the company "has moved toward a more customer-driven model and run down its legacy problem assets which should ultimately reduce its risk and free up capital," and that "its emerging markets presence offers another growth avenue that should help mitigate the impact of U.S. financial regulation and sluggish loan growth."

Goldberg is behind the consensus, estimating that Citigroup will earn $4.05 a share this year, followed by EPS of $4.25 during 2013.

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

1. Popular, Inc.

Shares of Popular, Inc. ( BPOP) of San Juan, Puerto Rico, closed at $1.54 Tuesday, returning 11% year-to-date, following a 56% drop during 2011.

The shares trade for just over half their tangible book value, and for five times the consensus 2013 EPS estimate of 29 cents. The consensus 2012 EPS estimate is 20 cents.

The company owes $935 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP.

Morgan Stanley analyst Ken Zerbe rates Popular "Overweight," with a $3.00 price target, saying in April after meetings with the company's management that "it is possible that BPOP could participate in further industry consolidation on the island - in a limited way only - if properties become available, which we would not have expected given their dominant 41% market share." Zerbe added that "a sizable acquisition in the US, however, is much farther off than we expected (at least 18 months) given lofty asking prices" and Popular's low share price, "suggesting buybacks (after TARP repayment) are relatively more attractive."

Zerbe also said that Popular was "likely to delay repayment until an equity raise is unnecessary."

In support of his rating for Popular, Zerbe said the company "has made meaningful progress in addressing its sizable credit issues by aggressively building reserves, shrinking its US business, and raising capital." Popular's reported a strong Tier 1 common equity ratio of 12.53% as of March 31.

Zerbe also said that "while commercial credit in Puerto Rico remains weak, Popular has returned to profitability, has the dominant franchise in Puerto Rico, and an attractive valuation that more than reflects potential credit concerns."

The analyst estimates that Popular will earn 19 cents a share this year, following earnings of 25 cents a share in 2013.

Interested in more on Popular, Inc.? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 5 Bank Stock Pullback Bargains portfolio on Stockpickr.

-- 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.

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.

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