4 stocks to beat in the booming savings and loan industry – April 1, 2021
The Zacks Savings and loans The industry is helped by the surge in mortgage creation and refinancing due to low mortgage rates. In addition, a gradual economic recovery, easing lending standards and stimulus packages are likely to foster loan growth and hence provide much needed support.
In addition, the digitization and reopening of the economy and businesses should support the industry in the short term. So some of the industry players like Citizens Financial Group, Inc. (CFG – Free report), New York Community Bancorp, Inc. (NYCB – Free report), ServisFirst Bancshares (SFBS – Free report) and WSFS Financial Corporation (WSFS – Free Report) are poised to take advantage of these developments.
Zacks’ savings and loan business includes specialty US banks that provide residential mortgages, commercial and industrial mortgages, home equity loans, auto loans, and other business loans.
These institutions finance mortgages insured by the Federal Deposit Insurance Corporation. Although businesses operate similarly to commercial banks by providing various banking services, such as checking and savings accounts, they are required to invest 65% of their assets in residential mortgages. In addition, these companies are locally owned and offer the best mortgage rates.
3 savings and credit industry trends to watch
Low prices and demand for the houses at the origin of the origins: The low interest rate environment is expected to continue as the Federal Reserve has indicated to hold rates near zero for now. In addition, the flexibility to work remotely as well as apprehensions of rising house prices due to low supply growth could boost home sales, as borrowers would like to offset this drop by taking advantage of interest rates. historically low. In addition, less regulatory oversight and an improvement in the housing market will likely stimulate industry growth in the coming quarters.
Gradual increase in demand for aid margin loans: Optimism about vaccine breakthroughs and subsequent availability for people aged 30 and over, easing economic restrictions, stimulus packages, and higher yields on 10-year U.S. Treasuries (i.e. i.e. borrowers and supporting demand for commercial and consumer loans. Therefore, loan growth, despite low rates, is likely to support net interest income and margin to some extent. companies.
Digitization to provide some respite: In the days to come, a number of challenges will arise for savings and loan companies, including legacy technologies and an imbalanced customer base. Thus, these companies will need to accelerate the transition to technology-driven, due-diligence-driven and flexible functioning institutions in order to remain competitive and reap profits in a rapidly changing market. While technology upgrades are expected to result in higher short-term non-interest charges, it will support companies’ financial position and increase market share over time.
Zacks Industry Rankings Shows Strong Outlook
The Zacks of the group Industry Ranking, which is essentially the Zacks ranking average of all member stocks, indicates good prospects in the near term.
Zacks’ savings and loan industry is currently ranked 35th in the industry, placing it in the top 14% of more than 250 Zacks industries. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of Zacks ranked industries is the result of good earnings prospects for the constituent companies as a whole. Looking at revisions to the aggregate earnings estimate, it appears that analysts are gaining confidence in the earnings growth potential of this group. Remarkably, the industry’s revenue estimates for the current year have been revised upwards by 15.3% since March 2020.
Before presenting a few stocks that you might want to consider for your portfolio, let’s take a look at the recent market performance and industry valuation.
Industry outperforms sector and S&P 500
Zacks’ savings and loan industry, a group of 34 stocks within Zacks at large Finance sector, has outperformed the S&P 500 and its own sector over the past year.
While stocks in this sector collectively rose 86.7%, the S&P 500 Composite gained 58.8%. During the same period, Zacks’ financial sector gained 59.6%.
One-year price performance
Current industry assessment
One can get a good idea of the industry’s relative valuation by looking at its price-to-tangible book value (P / TBV) ratio, which is commonly used to value finance companies due to the large variations in their results from one year to the next. quarter to quarter. .
The industry currently has a 12-month P / TBV of 1.57X, below the median level of 1.47X, for the past five years. This compares to the highest level of 9.98X and the lowest level of 0.84X over this period.
However, the industry is trading at a discount to the market as a whole, as the 12-month P / TBV ratio for the S&P 500 is 16.91X and the median level is 11.25X.
Tangible Price / Pound Ratio (TTM)
Since financial stocks generally have a low P / TB ratio, comparing savings and loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P / TB ratio with that of its larger industry ensures that the group is trading at a decent discount. Zacks Finance’s 12-month P / TBV ratio of 3.55X is at its midpoint for the same period and is higher than the respective Zacks Savings and Loans sector ratios.
Tangible Price / Pound Ratio (TTM)
4 savings and loan stocks worth betting on
Citizens’ Financial Group: This Zacks Rank # 2 (Buy) action offers banking products and services to individuals, institutions and businesses. Based in Providence, RI, the company operates approximately 1,000 branches and approximately 2,700 ATMs in 11 states and through its online, phone and mobile banking platforms.
The company’s focus on executing a series of revenue and efficiency initiatives led to the introduction of the “Tapping Our Potential” (TOP) program at the end of 2014. The latter program is expected to generate between $ 400 million and $ 425 million in pre-tax profits. 2021.
Citizens Financial’s capital deployment policy looks impressive. In January 2020, the company had increased its quarterly dividend by 8%. In addition, it has put in place a share buyback program worth $ 750 million, starting in the first quarter of 2021. Given the strength of its earnings, the company should be able to maintain the current plan for the deployment of fixed assets.
The company’s shares have risen 68.4% in the past six months. Zacks’ consensus estimate for revenue has moved 5.2% north to $ 3.83 and 3.1% to $ 3.95 for 2021 and 2022, respectively, in the past 60 days .
Price and consensus: CFG
New York Community Bancorp: The company offers traditional and non-traditional products and services, as well as access to multiple service channels, including online banking and mobile banking. It is also one of the leading producers of multi-family loans in New York.
The decline in the expense base of this Westbury, NY-based company (due to branch closures and the divestiture of unprofitable businesses) and expansion efforts through acquisitions should help financial services. In addition, the prevailing low interest rate environment is likely to support margins as its balance sheet is liability sensitive.
Zacks’ consensus estimate for 2021 earnings has moved 1.8% north to $ 1.12 in the past two months. The consensus estimate of $ 1.23 for 2022 earnings has been revised up 2.5% over the same period.
The stock currently carries a Zacks rank of 2. The company’s shares have climbed 48.8% in the past six months.
Price and Consensus: NYCB
ServisFirst Bancshares: This action Zacks Rank # 2 provides banking services to individuals and businesses in the United States. Based in Birmingham, the company operates through 21 full-service bank offices.
Despite the low interest rate environment, the company experienced growth in its net interest margin and income, which is expected to prevail over the coming period thanks to lower deposit costs and the gradual growth of interest rates. ready. Notably, the company had increased its common stock dividend by 14.3% in December 2020.
Its shares have risen 72.1% in the past six months. Zacks’ consensus estimate for revenue has risen 8.5% to $ 3.44 for 2021, over the past 60 days.
Price and consensus: SFBS
WSFS Financial: Based in Wilmington, DE, the company operates as a federal savings bank that was previously licensed as a state mutual savings bank. Thus, it benefits from a broader scope of authorized activities than most other financial institutions.
In a low interest rate environment, the bank experiences an increase in its net interest margin, which adds profitability. Additionally, the company is actively seeking strategic acquisitions over the next several years as it expects growth to be a mix of organic and acquisition-related products, in line with its long-term strategy. Earlier in March, he signed an all-stock deal to acquire Bryn Mawr Bank Corporation (BMTC) for $ 976.4 million.
This Zacks rank 2 share has appreciated 76.2% in six months. Zacks’ consensus estimate for current year revenue has risen 4.3% to $ 3.42 in the past 60 days. Likewise, the same for 2022 was revised almost 1% up to $ 3.83 during the same period.
Price and consensus: WSFS