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Neutral on People's United

Zacks Equity Research

On May 27, 2013, we reiterated our Neutral recommendation on People's United Financial Inc. (PBCT), based on its healthy capital position and reducing non-performing assets. Yet, revenue headwinds are a concern amid a tepid economic recovery, low interest rate and a tough regulatory environment. Further, with the expanding expense base, we remain somewhat skeptical about People’s United ability to augment earnings in the quarters ahead.

Why Neutral?

People's United’s first-quarter 2013 earnings came in at 18 cents per share, in line with the Zacks Consensus Estimate. Earnings compared unfavorably with $0.19 per share reported in the prior quarter but came in line with the prior-year quarter.

Lower non-performing assets and loans and deposits growth were the tailwinds for the quarter. Total net loans stood at $22 billion, up 2.3% sequentially. Moreover, total deposits advanced slightly on a sequential basis to $21.8 billion. Non-performing assets reduced 1.6% sequentially to $285.1 million as of Mar 31, 2013.

Following the dividend hike of 1.6% in Apr 2012, People’s United declared an enhanced quarterly dividend of $0.1625 per share in Apr 2013. This reflects the company’s trend of returning wealth to its shareholders, with its strong cash generating capabilities.

However, declining revenues due to a drop in the net interest and non-interest income and elevated expenses was the headwind. People's United’s total revenue, net of expense reported was $302.2 million in the quarter, down 2.3% sequentially. Moreover, results lagged the Zacks Consensus Estimate of $310.0 million. Non-interest expenses ascended 2.2% sequentially to $212 million.

Following first-quarter 2013 results, over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at 77 cents, while it increased 1.1% to 88 cents per share for 2014. Hence, People's United carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better performing stocks in the same sector include Great Southern Bancorp Inc. (GSBC), Provident Financial Holdings, Inc. (PROV) and Meta Financial Group, Inc. (CASH). All these companies carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PBCT

Read the Full Research Report on CASH

Read the Full Research Report on GSBC

Read the Full Research Report on PROV

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