During the first-quarter earnings season, the Finance sector turned out to be one of the best performers. Particularly, benefits from a stabilizing economy and improving interest-rate scenario have well positioned the banking industry. Moreover, lower commercial tax rate boosted banks’ profitability further.
In addition, relieving banks from some of the stringent requirements of the Dodd-Frank Act has made the companies optimistic of future earnings growth and raised investors’ sentiments as well. Hence, we thought of picking a stock from the sector that reflects strong fundamentals and has solid long-term growth opportunities.
With organic and inorganic growth strategies, as well as a robust capital position, M&T Bank Corporation MTB appears to be one such stock. The company’s focus on the most attractive business mixes in the banking industry to tackle macroeconomic headwinds and strategic priorities, including core technology infrastructure, is anticipated to yield positive results for the stock.
M&T Bank beat estimates in the March-end quarter and the Zacks Consensus Estimate moved up slightly for 2019 and 2020, over the last 60 days, reflecting analysts’ optimism about the company’s future prospects.
Further, shares of this Zacks Rank #2 (Buy) company have gained around 21.9% over the past six months compared with 18.8% growth registered by the industry.
Notably, M&T Bank has a number of other aspects which make it an attractive investment option.
Why M&T Bank is an Attractive Pick
Revenue Growth: M&T Bank continues to make steady progress toward bolstering its revenues. Since 2008, the company has recorded a continued rise in net interest income. Over the past five years (ended December 2018), it has witnessed a compound annual growth rate (CAGR) of nearly 11%, with the trend continuing in the first quarter of 2019 as well.
The company’s projected sales growth (F1/F0) of 4.2% indicates constant upward momentum in revenues.
Earnings Per Share Strength: Earnings are anticipated to display an upswing in the near term, as the company’s projected EPS growth (F1/F0) is 14% compared to the industry average rate of 5.09%. Also, M&T Bank recorded an average positive earnings surprise of 5.2%, over the trailing four quarters.
Inorganic Growth Routes: Given its robust liquidity position, M&T Bank is well positioned to grow on the back of acquisitions. This growth has been reflected in the company’s accomplishment of several major acquisitions in and out of the United States, over the past several years. The completion of the merger with Hudson City in November 2015 expanded the company’s retail branch network in the Eastern United States, with access to 135 Hudson branches, situated primarily in New Jersey. In addition, product and balance-sheet diversification, stemming from the acquisition, will likely boost the company’s top line.
Steady Capital Deployment: M&T Bank’s capital-deployment activities remain impressive. The company’s 2018 capital plan was approved by the Fed. The plan included share buyback of up to $1.8 billion over the four-quarter period, effective July 2018. Further, in August 2018, the company increased its quarterly common stock dividend by 25%.
Stock is Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Superior Return on Equity (ROE): M&T Bank’s ROE of 14.46%, as compared with the industry average of 12.69%, highlights the company’s commendable position over its peers.
Strong Leverage: M&T Bank’s debt/equity ratio is valued at 0.59 compared to the industry average of 0.91, indicating relatively lower debt burden. It highlights the financial stability of the company even in adverse economic conditions.
Other Stocks to Consider
First Business Financial Services, Inc. FBIZ has been witnessing upward estimate revisions for the last 60 days. Additionally, the stock jumped more than 21% in the past six months. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BankUnited, Inc. BKU has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 15.9% over the past six months. It holds a Zacks Rank #2, at present.
Comerica Incorporated CMA has been witnessing upward estimate revisions for the last 60 days. Over the past six months, the company’s share price has been up more than 7%. Currently, it carries a Zacks Rank #2.
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