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Shore Bancshares (SHBI) Announces Buyback: Is It Worth a Look?

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Shore Bancshares SHBI has announced a new share repurchase plan under which it is authorized to repurchase shares worth up to $5 million. Notably, the company received a non-objection letter from the Federal Reserve Bank of Richmond, which allows it to repurchase its common stock.

Repurchases can be executed either through the open market or privately-negotiated transactions, depending on the market conditions and other factors. The plan will expire on Dec 31, 2021, and can be terminated at any time without prior notice.

As of Nov 24, 2020, Shore Bancshares had 12,036,573 shares of common stock outstanding.

Lloyd L. “Scott” Beatty, Jr., the company’s president and CEO, stated, “We are pleased to announce that we have been authorized to begin a new common stock repurchase program. We feel at the present time this is a prudent use of our excess liquidity while maintaining our strong capital levels. With our common stock trading below tangible book value, we see this as an opportunity to put this capital to good use while creating long-term shareholder value.”

Prior to the new buyback program, the company had the authorization to repurchase shares worth up to $10 million by Dec 30, 2020. That plan was authorized in April 2019 but then suspended in the wake of disruptions in business caused by the coronavirus pandemic.

Nevertheless, in an effort to enhance shareholders’ value, the company reinstated the plan on Sep 1, 2020. Under the program, it purchased 772,971 shares for $9.9 million.

Given a robust capital position as well as a lower debt-equity ratio compared with its peers, Shore Bancshares is expected to sustain its capital deployment activities. Moreover, through consistent dividend payments, it is likely to continue enhancing shareholders’ value.

The last quarterly dividend of 12 cents per share was paid out on Aug 31 to shareholders of record as of Aug 15.

While it looks like Shore Bancshares is an attractive investment option based on its efficient capital deployment activities, let’s see whether it is worthwhile to consider the stock now. Deeper research into its fundamentals will likely help us understand the risks and rewards.

Based on the price/book (P/B) and price/earnings (P/E) ratios, the company seems to be trading at a discount than its peers. Its P/B ratio is 0.89, lower than the industry average of 0.93. Also, its P/E (F1) ratio of 12.03 compares favorably with the industry’s 12.34.

Also, analysts are optimistic regarding the company’s earnings growth potential. The Zacks Consensus Estimate for its 2020 and 2021 earnings has been revised upward by 18% and 13.3%, respectively, over the past 30 days. Also, over the last three-five years, the company recorded earnings growth of 24.6% compared with the industry average of 10.3%.

However, its return on equity (ROE) undercuts its growth potential. Its ROE currently stands at 8.05%, lower than the industry average of 8.46%. This shows that it is less efficient than peers in utilizing shareholders’ funds.

Moreover, the coronavirus outbreak-related slowdown has been hurting the bank’s profitability. Also, margin pressure is likely to persist in the near term mainly due to the continued low interest rate environment.

Looking at its price performance, shares of Shore Bancshares have gained 47.1% over the past six months compared with the industry’s rally of 15.9%.

Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

New Share Buyback Plans by Other Finance Companies

In September 2020, Ameriprise Financial AMP announced an additional share buyback plan to repurchase shares worth $2.5 billion through Sep 30, 2022.

Home Bancorp HBCP and HarborOne Bancorp HONE also announced new share repurchase authorizations. Home Bancorp’s board of directors approved the repurchase of up to 444,000 shares of the company’s common stock. HarborOne Bancorp’s board of directors adopted a share repurchase program, which authorized the buyback of up to 2.92 million shares.

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