People's United Grows on Acquisitions, Costs Woes Linger
On May 17, we issued an updated research report on People's United Financial PBCT. The company has witnessed solid organic growth over the last few years. Further, its involvement in capital deployment activities continues to enhance shareholders’ value. However, consistently rising expenses and significant exposure to commercial loans remain major concerns.
Nevertheless, opportunistic acquisitions, improvement in asset quality and strong loans and deposits balances have aided the stock’s rally of 12.1% in the past year compared with 11.4% growth recorded by the industry.
Further, the company’s Zacks Consensus Estimate for current-year earnings has remained stable, over the last 60 days. As a result, it currently carries a Zacks Rank #3 (Hold).
People’s United’s strong balance sheet position along with sound inorganic growth strategies have bolstered its revenues. In July 2017, it acquired LEAF Commercial Capital, an independent commercial equipment finance provider. In April 2017, the company completed the $391 million all-stock deal to acquire Riverhead-based Suffolk Bancorp, which is set to fortify its footprint in the New York Metro region. Moreover, these transactions are anticipated to be accretive to earnings.
Further, driven by a robust capital position, the company remains committed to enhance shareholders’ value. In April 2018, it raised its quarterly dividend by 1.4%, marking the 25th consecutive annual dividend hike. Further, given its favorable debt/equity ratio, these capital deployment activities are sustainable, going forward.
Moreover, consistently improving credit quality acts as a tailwind. The company’s non-performing assets have declined at a five-year CAGR of 9.3% in 2017, with the trend continuing into first-quarter 2018 as well.
However, despite undertaking a number of expense-saving initiatives, People’s United’s elevated operating expenses remain a headwind. Over the last five years (ended 2017) costs have witnessed a CAGR of 3.4%. Though the company is focused on optimizing its branch network and has initiated installation of technology to improve efficiencies and reduce costs, high expense levels are likely to limit bottom-line expansion.
Also, majority of People’s United's loan portfolio — nearly 73% as of Mar 31, 2018 — comprises total commercial loans (commercial and industrial lending as well as commercial real estate lending). Such high exposure to commercial loans remains a concern.
Stocks to Consider
BOK Financial Corporation BOKF has witnessed a 4% upward estimate revision in the last 30 days. In a year’s time, the company’s share price has gained more than 25%. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
E*TRADE Financial Corporation ETFC sports a Zacks Rank #1. Its earnings estimates for 2018 have been revised nearly 8.3% upward over the last 30 days. Also, its shares have gained more than 85% in the past year.
The Goldman Sachs Group GS flaunts a Zacks Rank #1. The Zacks Consensus Estimate for the company has jumped 6.6% for the current year, in the last 30 days. Its share price has gained more than 10% in the past year.
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