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Webster Financial WBS seems to be a profitable pick now based on its underlying strength and earnings growth prospects. The factors that indicate upside potential in the stock include an impressive organic growth story, improving credit quality and capital strength.
Further, with the ease in regulations and lifting of threshold for systemically important financial institutions to $250 billion, Webster will now be able to expand its asset base and boost business without worrying about the regulatory compliance costs.
The company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 4%.
In addition, it has been successful in gaining analysts’ confidence. Its current-year earnings estimates have been revised 5% upward, over the last 60 days. As a result, the stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Webster have gained 31.3% over the past 12 months compared with the industry’s rally of 8.8%.
Why the Stock Is Worth Buying
Revenue Strength: The company has been witnessing consistent improvement in revenues. Over the last five years (ended 2017), total revenues recorded a compound annual growth rate (CAGR) of 7.6%.
Additionally, the upward trend is expected to continue in 2018 at a growth rate of 7.5%, with support from rising interest rates environment and Webster’s focus on bolstering fee income sources.
Impressive Balance Sheet Growth: Webster’s loans and deposits have witnessed a CAGR of 8.4% and 9%, respectively, over a five-year period (ended 2017). Further, management expects average loan growth to be 1.5-2.5% on a sequential basis. Also, both loan and deposit balances are likely to get support from an improving economy.
Improving Credit Quality: Webster’s credit quality has improved significantly over the years. In 2017, ratio of non-performing loans to total loans declined to 0.72% from 1.28% in 2013. Also, the ratio of net-charge offs to average loans came in at 0.20% compared with 0.47% in 2013.
Earnings per Share Growth: The company has recorded an earnings growth rate of 6.7%, over the last three to five years, compared with 9.4% for the industry it belongs to.
Moreover, this earnings momentum is likely to continue in the near term as the company’s projected EPS growth (F1/F0) is 36.9% compared with 23% for the industry.
Superior Return on Equity: Webster has a return on equity of 10.6% compared with the industry average of 8.91%. This indicates that the company is efficient in utilizing shareholder funds.
Other Stocks to Consider
Some other stocks in the same space worth considering are First Commonwealth Financial Corp. FCF, Financial Institutions FISI and County Bancorp ICBK. All these stocks carry a Zacks Rank #2 (Buy).
First Commonwealth’s Zacks Consensus Estimate for current-year earnings was revised nearly 1% upward for 2018, in the last 60 days. Also, its share price has increased 26.2% in the past 12 months.
Financial Institutions’ current-year earnings estimates were revised 2.6% upward, over the last 60 days. Further, the company’s shares have increased nearly 4% in a year.
County Bancorp’s Zacks Consensus Estimate for current-year earnings was revised nearly 5% upward, over the last 60 days. Moreover, in the past year, its shares have gained 11.1%.
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Financial Institutions, Inc. (FISI) : Free Stock Analysis Report
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