Raymond James Slashes Banks Ahead of Summer of Doom

NEW YORK ( TheStreet) -- "Strap on your helmet and buckle up as it is likely to be a bumpy ride this summer" for bank stocks investors, according to Raymond James analyst Anthony Polini.

Raymond James late on Tuesday lowered earnings estimates "at the majority of 76 larger cap banks we collectively follow (excluding trust banks) primarily reflecting record low interest rates and a slower pace of loan growth." The firm also lowered its ratings for seven banks.

Polini said that "Friday's disappointing job report with the U.S. unemployment rate increasing during April to 8.2% from 8.1% sparked a meaningful sell-off in the sector, which had already been in sell off mode since the end of 1Q12 earnings season in early May," and that "going forward, we see low rates persisting at least for the nearer-term with the view that the economic data/sentiment sinks lower before improving."

Raymond James therefore expects the trend of declining net interest margins (NIM) for banks to continue, "well into 2013." Polini said that the "benefits of lowering funding costs and credit leverage to mitigate NIM headwinds" have largely played out," and that "lower NIMs will further compound pressure on top and bottom line profitability in the short to intermediate-term."

Polini also expects loan growth -- a very important theme for many regional banks over the past several quarters -- to be "pressured in the near term," as last week's weak economic reports have lead Raymond James to "believe loan growth will now generally prove slower than we had originally forecast for at least the next few quarters." Politics also comes into play as "uncertainty around tax issues, healthcare costs, and further unemployment are likely to constrain spending and investment among businesses and consumers alike without a clear leader in recent presidential polls."

Here's a quick look at the seven banks downgraded by Raymond James late on Tuesday:

Citigroup
Polini lowered his rating for Citigroup ( C) to "Outperform" from "Strong Buy," while drastically cutting his 12-month price target for the shares to $35 from $48, and lowering his 2012 earnings estimate to $4.08 from $4.20, and his 2013 EPS estimate to $4.42 from $4.88.

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Citigroup's shares closed at $25.75 Tuesday, down 6% year-to-date, after dropping 44% during 2011. The shares trade for just over half their tangible book value, according to Thomson Reuters Bank Insight, and for less than six times the consensus 2013 earnings estimate of $4.64 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.09.

Polini said that "persistent global economic concerns could negatively impact C's relative price performance over the near term," and that his new price target assumed the company would trade "at about 8.0x 2013E EPS of $4.42 or at a discount to our industry average (comprised of the nation's 40 largest banks) of 10.4x," with the discount "warranted given the weak domestic economic recovery and the company's relatively high international exposure."

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

Dime Community Bancshares
Polini lowered his rating for Dime Community Bancshares ( DCOM) of Brooklyn, N.Y., to "Underperform" from "Market Perform," while leaving his 2012 EPS estimate of $1.20 and his 2013 EPS estimate of $1.15, unchanged.

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Dime's shares closed at $12.68 Tuesday, returning 3% year-to-date, after declining 10% during 2011. The shares trade for 1.4 times their reported March 31 tangible book value of $9.15, and for 11 times the consensus 2013 earnings estimate of $1.19. The consensus 2012 EPS estimate is $1.20.

Polini said that Dime's "superior credit quality and balance sheet strength will likely take a back seat to a relatively weak outlook for EPS growth and a relatively high valuation."

Based on a 14-cent quarterly payout, the shares have a dividend yield of 4.42%. Dime Community Bancshares was featured on Wednesday as one of five buy-rated bank stocks with attractive dividends that were relatively safe, with the companies paying out less than half of their first-quarter earnings.

Interested in more on Dime Community Bancshares? See TheStreet Ratings' report card for this stock.

Flushing Financial Corp.
Polini lowered his rating for Flushing Financial Corp. ( FFIC) of Lake Success, N.Y. to "Market Perform" from "Outperform," while leaving his 2012 EPS estimate unchanged at $1.10, and lowering his 2013 EPS estimate to $1.10 from $1.16.

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Flushing Financial Corp's shares closed at $12.57 Tuesday, returning 1% year-to-date, after declining 6% during 2011. The shares trade just below their reported March 31 tangible book value of $13.16, and 11 times the consensus 2013 earnings estimate of $1.19. The consensus 2012 EPS estimate is $1.09.

Based on a 13-cent quarterly payout, Flushing Financial Corp.'s shares have a 4.14%. The dividend payout ratio was 57%, based on the company's first-quarter earnings of 23 cents a share.

Polini said that "despite strong fundamentals, the visibility for EPS growth is below average due to the challenging macroeconomic backdrop."

Interested in more on Flushing Financial Corp.? See TheStreet Ratings' report card for this stock.

IberiaBank Corp.
Raymond James analyst Michael Rose lowered his rating for IberiaBank Corp. ( IBKC) of Lafayette, La., to "Outperform" from "Strong Buy," while lowering his price target for the shares to $55 from $60, and cutting his 2012 EPS estimate by three cents to $2.72 and his 2013 EPS estimate by 15 cents to $3.10.

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IberiaBank's shares closed at $45.86 Tuesday, down 6% year-to-date, following a 14% decline last year. The shares trade for 1.2 times their reported March 31 tangible book value of $37.23, and for 14.5 times the consensus 2013 earnings estimate of $3.17. The consensus 2012 EPS estimate is $2.70.

Based on a 34-cent quarterly payout, the shares have a dividend yield of 2.97%. With first-quarter earnings of 66 cents a share, the dividend payout ratio was 52%.

Rose said that although he continues to "view the fundamental story positively, a reduction in EPS estimates /price target renders a less attractive risk/reward given uncertainty around expenses, a lower NIM, and slower (but still robust) loan growth."

The analyst's $55 price target for IBeriaBank "assumes IBKC shares trade at 1.4x our 1Q13E tangible book value estimate of $39.75, in line with the southeast & southwest peer median."

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

JPMorgan Chase
Polini lowered his rating for JPMorgan Chase ( JPM) to "Outperform" from "Strong Buy," while cutting his price target for the shares to $46 from $52, and lowering his 2012 earnings estimate to $4.45 a share from $4.70, and his 2013 EPS estimate to $5.10 from $5.48.

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JPMorgan's shares closed at $31.99 Tuesday, down 2% year-to-date, following a 20% decline during 2011. The shares trade just below tangible book value, and for six times the consensus 2013 earnings estimate of $5.35. The consensus 2012 EPS estimate is $4.37.

Based on a 30-cent quarterly payout, the shares have a dividend yield of 3.75%.

Polini said that although the valuation for JPMorgan's shares is "very attractive, we believe uncertainty related to macroeconomic issues and the aftermath of the second-quarter hedge trading losses announced on May 10 could undermine strong price appreciation over the near term."

The analyst's $46 price target for JPMorgan "is based on JPM trading at about 9.0x our 2013E EPS of $5.10, or in-line with its depressed three-year average P/E multiple of 9.0x, but at a discount to our 15-year industry average (for the nation's 40-largest banks) of 12.5x." Polini said the "discount is warranted given the weak domestic economic recovery and the company's relatively high international exposure."

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

UMB Financial
Raymond James analyst David Long lowered his rating for UMB Financial ( UMBF) of Kansas City, Mo., to "Underperform" from "Market Perform," while lowering his 2012 EPS estimate to $2.72 from $2.76, and his 2013 EPS estimate to $2.93 from $2.98.

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UMB's shares closed at $44.49 Tuesday, returning 20% year-to-date, after an 8% decline during 2011. The shares trade for twice their tangible book value, and for 14 times the consensus 2013 earnings estimate of $3.15. The consensus 2012 EPS estimate is $3.24.

Long cut his rating for the shares after they "substantially outperformed its peers over the last three months," adding that "we believe revenue expectations are too high for the second half of 2012 given pressure on its NIM and trust and securities processing fees."

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

Valley National Bancorp
Polini lowered his rating for Valley National Bancorp ( VLY) of Wayne, N.J., to "Market Perform" from "Outperform," while lowering his 2012 earnings estimate by two cents to 72 cents a share, and his 2013 EPS estimate to 70 cents from 76 cents.

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Valley National's shares closed at $10.65 Tuesday, declining 8% year-to-date, following a 4% decline during 2011. The shares trade for 2.1 times tangible book value, and for 14 times the consensus 2013 earnings estimate of 78 cents. The consensus 2012 EPS estimate is 73 cents.

Based on a quarterly payout of 16 cents, the shares have a dividend yield of 6.01%. The company earned 18 cents a share during the first quarter, for a rather high dividend payout ratio.

Polini said that "despite a very strong balance sheet, the outlook for EPS growth is below average due to the very low interest rate environment and weak recovery."

Interested in more on Valley National Bancorp? See TheStreet Ratings' report card for this stock.

-- 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.