logo
  Join        Login             Stock Quote

Elections Aside, It's A Slow Crawl Back To "Normalized" EPS

 November 13, 2012 05:15 PM


(By Mani) Another four years with Obama, a new Democrat in the Senate and even the Bieber/ Selena Gomez break-up do not change the view that 2013 and 2014 will be challenging years for earnings at regional and small banks, especially if mortgage origination volume slows.

Roughly one-third of these companies are expected to have negative EPS growth in 2013, with reserve releasing coming to an end, asset yields compressing and recent loan volume slowing.

As the fiscal cliff looming and the ongoing depressing economic signals from Europe dominating the financial headlines, it would be difficult for the loan demand to accelerate.

"While we don't view the sector as necessarily overvalued, we see the potential for lower core earnings and profitability over the near term, thus limiting multiple expansion," Oppenheimer analyst Terry McEvoy wrote in a note to clients.

[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]

Year-to-date, the S&P regional bank index is up 14.4 percent and has outperformed the S&P 500's 9.7 percent growth.

Analysts' fundamental concern in recent quarters centering on net interest margin (NIM) compression, while they feel more comfortable with consensus expectations at the largest 25 regional banks, which are currently assuming an average 15 basis points (bps) drop from the third quarter average of 3.54 percent to 3.39 percent in fiscal 2013.

In addition, the loan growth forecasts may be aggressive at about 8 percent growth expected over the next five quarters in light of the slowing economic conditions. Consensus GDP growth for the fourth quarter is currently 1.8 percent and 2 percent in fiscal 2013. 

[Related -PBoC joins other major central banks with unconventional monetary policy action]

"Historically, core loan trends, especially commercial, have tracked GDP growth," the analyst wrote.

Moreover, the re-election of President Obama as well as Elizabeth Warren's move into the Senate may not have set well with many regional and small-bank CEOs as regulatory changes across the industry have added expenses and reduced revenue.

"This could pressure boards to throw in the towel and sell out, especially if the Fed's view on interest rates persists," McEvoy noted.

Regional banks with more than $50 billion in assets trade at 1.3x tangible book and at 10.3x estimated 2013 EPS while regional banks with between $12 billion and $50 billion in assets trade at 1.5x and 13.0x, respectively.

"Our top picks today would be PNC Financial (attractive valuation with positive EPS growth next year) and both SunTrust (NYSE:STI) and Comerica (trading at or below tangible book value, or TBV)," McEvoy added.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageBuffett's Market Indicator Flashes Red, Prepare To Sell

With each passing month, it's becoming evident that the current bull market has slowed from a gallop to a read on...

article imagePBoC joins other major central banks with unconventional monetary policy action

Softer than expected economic growth in China (see discussion) has finally spurred the PBoC into action. read on...

article imageA Buyback Boost?

Are stock buybacks the only thing keeping this bull market read on...

article imageGold Slides On Perfect Storm For Dollar

For all the anticipation surrounding the delivery of the Fed’s statement in the run-up to the September read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

A Buyback Boost?
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.