Mid-Cap Value PlaysAlong with the declining mortgage volume, banks continue to face a hostile rate environment, with most already enjoying all of the benefit of a decline in funding costs, since the Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. Meanwhile, with the Fed doing everything it can to hold long-term rates down, most lenders are continuing to see assets reprice, leading to continued pressure on net interest margins (NIMs). Loan demand also appears soft, although select lenders will no doubt continue to post strong loan growth numbers. Scinicariello in a note to clients late on Tuesday said for the mid-cap banks that he covers, "we project loan growth of 1.6% (lower than prior quarters), manageable NIM pressure of 6bps (with the potential to be less) but flat
- Shares of JPMorgan Chase (JPM) closed at $48.68 Tuesday, trading for 8.0 times the consensus 2014 earnings estimate of $5.82, among analysts polled by Thomson Reuters. The company will announce its first-quarter results on Friday, with a consensus EPS estimate of $1.39, matching its fourth-quarter results, but increasing from $1.19 in the first quarter of 2012.
- Citigroup (C) closed at $43.89 Tuesday, trading for 8.4 times the consensus 2014 EPS estimate of $5.20. Citi will report its first-quarter results on Monday, with a consensus EPS estimate of $1.18, increasing from 69 cents in the fourth quarter, when the company took charges related to massive cost-cutting moves including 11,000 layoffs. Citi earned $1.11 a share in the first quarter of 2012.
- Bank of America (BAC) closed at $12.25 Tuesday, trading for 9.3 times the consensus 2014 EPS estimate of $1.32. The company will announce its first-quarter results on April 17, with analysts expecting earnings of 23 cents a share, increasing from 3 cents a share, both in the fourth quarter and the first quarter of 2012. Bank of America's fourth-quarter results included charges related to the company's $10.3 billion mortgage putback settlement with Fannie Mae.
- Wells Fargo closed at $37.45 Tuesday, trading for 9.7 times the consensus 2014 EPS estimate of $3.88. Wells Fargo will also report on Friday, with a consensus first-quarter EPS estimate of 88 cents, declining from 92 cents in the fourth quarter, but increasing from 73 cents in the first quarter of 2012.
Shares of FirstMerit ( FMER) of Akron, Ohio, closed at $16.50 Tuesday, returning 18% this year, following a 2% decline during 2012. The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for 11.7 times the consensus 2014 EPS estimate of $1.41. The consensus 2013 EPS estimate is $1.25. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 3.88%. The company in September agreed to acquire Citizens Republic Bancorp ( CRBC) of Flint, Mich., in an all-stock deal valued at $912 million. Citizens Republic has $9.6 billion in total assets and owes $300 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP. FirstMerit plans to purchase Citizens Republic's TARP preferred shares from the U.S. Treasury without itself becoming subject to TARP's restrictions, while also paying the government deferred dividends totaling $48.5 million. The merger is expected to be completed in the second quarter. The consensus among analysts is for FirstMerit to report first-quarter earnings of 31 cents a share, declining from 35 cents in the fourth quarter, but increasing from 28 cents in the first quarter of 2012. Scinicariello on Tuesday raised his price target for FirstMerit's shares to $18.00 from $17.50, saying in his note to investors that "We believe the acquisition of CRBC provides longer-term growth opportunities." Scinicariello maintained his first-quarter EPS estimate of 32 cents and his 2013 EPS estimate of $1.28, but lowered his 2014 EPS estimate to $1.69 from $1.63, because of expected net interest margin compression. "Given the size and importance of the CRBC deal, we expect FMER to remain focused on integration throughout 2013 before ramping up inorganic capital deployment but gauging management's future appetite will be important." Interested in more on FirstMerit? See TheStreet Ratings' report card for this stock.