Given past questions, I am sharing my rough method for estimating Banner's potential earnings as we emerge from the real estate crisis of 2008/2009. in prior years Banner was generally able to earn a ROA of close to 1%, not unusual for a well run, large regional community bank. To be conservative, I used an 0.8% ROA. For $5 billion of assets that would translate into approximately $40 million of annual earnings in the intermediate time frame, or, almost $2 per share. If they issued more shares, I presume that it would be for an acquisition in a FDIC bank fire sale. In that case, I guessed that their assets would be closer to $6 billion and their outstanding shares would increase by about 12 million shares. Hence, using an 0.8% ROA, the recovered earnings potential could translate into EPS of about $1.40. So, IMHO, Banner might produce EPS of around $1.50+, depending on what their strategy is for growth, capital and acquisitions. Given my assumptions and Banner's history, you can see why I have been accumulating a large position in their stock. If they achieve these expectations and you apply a reasonable P/E of 10x-12x, the upside for the stock could possibly be $15 per share, or, more. During more normal times, their stock traded as high as $40. Hence, I concluded, using my assumptions, that the downside was limited and the upside extremely large. Do your own due diligence. I could be wrong, but these are the assumptions that led to my conclusions. This is one stock that I am not trading. I am holding it.
This stock is not followed by a lot of analyst and there is no famous smart money manager (hedge fund) owning the shares. Can the stock still has the catalyst to go up?
You can see CIT Post BK now. Paulson, Soros, etc. All the big boys are there. Which is a sign that the stock will goes up faster since there is institutional money involved. The caveat is the borrowing cost is too high at present.
By the way, for my portrayed calculations on Banner's earnings potential, I forgot to point out why it reinforces that it appears to make little sense for management to issue new shares at today's prices. As you can see, with my assumptions, the EPS seem to do much better with just going forward without new equity and a shot at a FDIC garage sale.
I agree that this bank has a lot of potential and there is probably more risk in trying to trade it and doing so miss a pop up in price than just holding it for a couple of years. Still it's hard not to take a little profit now and then. Thanks for the analysis.