Cardinal Financial (CFNL): Zacks Rank Buy

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Cardinal Financial Corp. (CFNL) has watched earnings estimates for this year and next advance sharply over the past 2 months. On October 23, this regional bank reported a third-quarter earnings surprise of 54.8%; its sixth straight quarterly beat.

With a P/B multiple of just 1.5, Cardinal Financial is a true value pick. Moreover, shares hit a 52 week high on November 6 and the stock attained a Zacks #1 Rank (Strong Buy) on November 21.

Impressive Q3

Cardinal Financial's third-quarter earnings of 48 cents per share outpaced the Zacks Consensus Estimate by 54.8% and the year-ago earnings by 65.5%. Solid top-line growth led to the strong results, partially offset by a rise in operating expenses.

Net interest income surged 17.7% year over year to $23.7 million. Likewise, non-interest income jumped 48.0% to $22.2 million as a result of huge increases in title insurance & other income and loan fees. Non-interest expenses rose 17.7% to $22.3 million, mainly reflecting a 44.0% increase in salaries and benefits costs. The provision for loan losses plummeted 48.0% from the year-ago quarter to $1.5 million.

Asset quality continued to improve during the quarter. As of September 30, 2012, total non-accrual loans fell 18.1% year over year to $8.8 million. Likewise, the allowance for loan losses was 1.53% of loans receivable, down 7 basis points from the previous year.

Earnings Estimates Surging

Over the past 60 days, the Zacks Consensus Estimate for 2012 jumped 26.3% to $1.49 per share, reflecting a year-over-year improvement of 58.2%. For 2013, the Zacks Consensus Estimate advanced 24.0% to $1.39 over the same time frame.

Valuation Looks Attractive

Along with a low P/B multiple, Cardinal Financial trades at a forward P/E ratio of just 10.1 (a P/E ratio under 15.0 and a P/B ratio below 3.0 generally indicate value). Also, given the long-term growth projection of 18.8%, the PEG ratio comes in at 0.56, a 44.0% discount to the benchmark of 1 for a fairly priced stock. Thus, the expected long-term earnings growth is currently priced at a discount.

Moreover, Cardinal Financial has a trailing 12-month ROE of 14.9%, compared with the peer group average of 9.2%. This implies that the company reinvests its earnings more efficiently than its industry peers.

Headquartered in Tysons Corner, Virginia, Cardinal Financial provides various banking products and services to commercial and retail customers in northern Virginia and the greater Washington D.C. area through 27 banking offices. Founded in 1997, the company has a market cap of about $440.3 million. First Community Bancshares, Inc. (Bluefield) (FCBC) and Capital City Bank Group Inc. (CCBG) are the other Zacks #1 Rank (Strong Buy) stocks in the same industry.


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