Zacks Investment Ideas feature highlights: Citizens Community Bancorp, and People's United Financial
For Immediate Release
Chicago, IL – March 18, 2022 – Today, Zacks Investment Ideas feature highlights Citizens Community Bancorp, Inc. CZWI, and People's United Financial, Inc. PBCT
Financial Stocks to Buy as Fed Hikes Rates
The Federal Reserve raised its key interest rate on Wednesday for the first time since 2018, a move that will provide a foundation for more hikes in the months and years ahead. The Fed sets the federal funds rate, which is the interest rate at which banks borrow and lend to one another overnight.
While this rate differs from the borrowing and savings rates consumers pay and receive, the central bank's decisions still play a role in determining those rates. But even though banks will have to borrow at these slightly higher rates for overnight lending, financial institutions are unlikely to pass this along to consumers in the form of higher savings rates.
After maintaining a range of 0%-0.25% for the past two years that was originally pursued as an emergency action in response to the coronavirus pandemic, the federal funds rate target range was increased by 25 basis points to 0.25%-0.50%.
The Federal Open Market Committee (FOMC) also released its rate hike projections, signaling that the Fed was likely to raise rates up to six more times this year. This path is more hawkish than the prior round of Fed projections from December, in which the central bank predicted only three total rate hikes in 2022. The median FOMC member is projecting that the federal funds rate will be between 2.5%-3% by the end of 2024.
If inflation remains elevated and continues to come in above expectations, the Fed may even hike faster than anticipated. As we know, the market is forward-looking and as Wednesday's hike was likely already priced in, the markets are more concerned about the path of future hikes.
Fed Chairman Jerome Powell left the door open for larger rate hikes down the road. Some policymakers have voiced their support for a 50-basis point hike as opposed to the more standard 25-basis point hike, particularly if inflation were to unexpectedly worsen from this point. The next policy meeting is scheduled to wrap up on May 4th.
The Fed also warned that even in the face of higher interest rates, inflation is not likely to immediately decline. The central bank now expects prices to rise 4.3% throughout 2022 and anticipates that rate to subside to 2.7% next year.
On the flip side, the Fed acknowledged that the Russia-Ukraine conflict is the wild card in this scenario and it continues to contribute to the uncertainty hanging over the financial markets. The implications of the geopolitical event are highly uncertain and are likely to weigh on economic activity. A drag on global growth would likely give the Fed reason to pause or scale back future hikes.
Still, with the highest inflation in 40 years and the Fed having to play catchup, I'd expect the central bank to err on the aggressive side. Powell himself has stated that he should have started hiking much sooner.
The financial sector has been beaten up in the past few weeks, but with a more hawkish tone from the Fed, I'd expect financials to turn it around here. Let's take a look at two leading financial stocks that are poised to continue their outperformance.
Both companies are part of the Zacks Financial – Savings and Loan industry group, which currently ranks in the top 22% out of approximately 250 industries. This industry group is showing some favorable valuation characteristics.
Citizens Community Bancorp, Inc.
Citizens Community Bancorp operates as a financial holding company that provides traditional community banking services to businesses and consumers alike. CZWI offers various deposit products including checking and savings accounts, demand accounts, CDs, and money market accounts. The company's loan products comprise commercial real estate, agricultural operations and real estate, as well as residential mortgages and home equity lines-of-credit. Citizens Community Bancorp was founded in 1938 and is headquartered in Eau Claire, WI.
A Zacks Rank #2 (Buy) stock, CZWI has surpassed earnings expectations in each of the past eight quarters. The financial services company most recently reported Q4 EPS of $0.58, a 45% surprise over the $0.40 consensus estimate. Over the past four quarters, CZWI has delivered a 30.42% average earnings surprise, helping the stock advance 23.4% in the past year.
Despite the impressive performance, CZWI still trades relatively undervalued (10.68 forward P/E) versus its industry group (12.47 forward P/E). The company has been on the receiving end of positive earnings estimate revisions as of late. For the current quarter, analysts have increased their EPS estimates by 12.12% in the past 60 days to $0.37. CZWI is scheduled to report the Q1 results on April 25th.
People's United Financial, Inc.
People's United Financial operates as the bank holding company for People's United Bank. PBCT provides commercial and retail banking as well as private wealth management services to individuals, businesses, and governments. The company also offers consumer lending, trust advisory, brokerage, equipment financing, and insurance services. People's United Financial was founded in 1842 and is based in Bridgeport, CT.
PBCT recently announced a merger with M&T Bank which is expected to close in early April following regulatory approval. Both banks will continue to be served through their respective branches until a systems conversion which is scheduled to be completed in Q3 of this year.
PBCT has missed earnings estimates just twice in the past five years. A Zacks #2 (Buy) stock, the bank holding company most recently reported Q4 EPS of $0.36, a 16.13% surprise over the $0.31 consensus estimate. PBCT has posted a trailing four-quarter average earnings surprise of 11.84%, boosting the stock nearly 22% higher in the past year.
Looking ahead, analysts covering PBCT have increased their 2023 EPS estimates by 3.68% in the past 60 days. The Zacks Consensus Estimate for next year's earnings now stands at $1.41, translating to 13.7% growth relative to this year's $1.24 estimate.
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