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Balanced Risk-Reward for People's United

Zacks Equity Research

On May 14, 2014, we issued an updated research report on People's United Financial Inc. (PBCT). This commercial and retail banking services provider recently reported decent first-quarter 2014 results.

Improved credit quality, aided by lower provision for loan losses was a tailwind in the quarter. Further, increased loans and deposits as well as higher revenues reflected organic growth of the company. However, increased expenses depict undisciplined expense management. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.

People's United reported first-quarter 2014 operating earnings of 19 cents per share, missing the Zacks Consensus Estimate by 4.76%. However, earnings outpaced the prior-year quarter earnings by 5.56%.

We view People’s United as a sound asset for yield-seeking investors. In mid-Apr 2014, the company increased its quarterly dividend to 16.50 cents per share from 16.25 cents. Moreover, during first-quarter 2014, the company repurchased common stock worth $2.6 million and paid roughly $48.6 million as common stock dividends. This reflects the company’s trend of returning wealth to its shareholders through its strong cash generating capabilities.

Though People’s United’s operating return on average assets of 0.69% in the first quarter was down 8 basis points (bps) on a year-over-year basis, improvement is expected in the coming quarters, driven by loan and deposit growth, fee income growth and prudent expense management. Further in the future, with the highly asset sensitive balance sheet, management looks forward to the rates returning to historical normalized levels.

Despite strong fundamentals, we believe there are certain issues that may pressurize the company’s financials in the near term. These include absence of credible improvement in the mortgage market, declining net interest margin due to a low interest rate environment, increased cost structure and the prevailing stringent regulatory landscape.

Following the first-quarter results, the Zacks Consensus Estimate over the past 30 days declined around 2.4% to 83 cents per share for 2014. Also, the same for 2015 dipped about 2.1% to 94 cents per share, over the same time frame.

People's United currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked companies in the same sector include Anchor Bancorp (ANCB) and Great Southern Bancorp Inc. (GSBC) with a Zacks Rank #1 (Strong Buy), while Cape Bancorp, Inc. (CBNJ) carries a Zacks Rank #2 (Buy).

Read the Full Research Report on PBCT
Read the Full Research Report on CBNJ
Read the Full Research Report on GSBC
Read the Full Research Report on ANCB

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