Stockchase Opinions

John Burke Regions Financial RF-N HOLD Nov 15, 2016

Regional banks are relatively easy to evaluate. They either get processing fees to process mortgages, or they make spreads between what they pay out on their deposits and what they get on their mortgages. Feels they have been undervalued since 2008. Despite the recent rally, this is still undervalued.

$13.530

Stock price when the opinion was issued

Financial Services
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COMMENT

A regional bank in the south east US. Interest rates are very low and this is a retail/commercial bank that derives a lot of their money from net interest income. He likes its location, which has lots of good growth over the long-term. They passed all the Fed’s stress tests and are able to accomplish a lot of their capital plans. This bank is over capitalized and at some point in time, you are going to see dividends move up more aggressively along with more share buyback.

WEAK BUY

Hasn't gone up in the last little while. They don't have investment banking, are retail banks, Are in good shape, but need interest rates to move up. Thinks they will do well over the long term.

COMMENT

This is one of several regional banks in the US. Regional banks for years did particularly well. This year, a number of the regional banks, including this one, haven’t had earnings growth. The earnings numbers are actually down slightly. Stock is not expensive, but without growing earnings it is really, really hard to see this company going very far.

DON'T BUY

Regional banks are not all the same. He likes the sector. A lot of stocks are getting hit from a macro perspective. When we come out of this correction, leadership will emerge. It is not the weaker stocks coming out that lead, but rather the stronger. He recommends KRE-N as it is trading stronger than 75% of the stocks.

BUY

He likes US financials as they are trading at or close to book. They should raise dividends close to where they are in Canadian banks. There is a potential to double over the long term.

BUY

A regional bank, a bit of a roll up. They have run into credit problems before. They predominantly take in deposits and lend them out. If we get into a credit cycle, you have to be careful, but he does not see that on the horizon. He still likes financials.

TOP PICK

It is a small regional player, the largest deposit taker in the state of Alabama. The banks will continue to benefit from the slow increase in interest rates. This is an attractive stock. It is in a good position now after cleaning up its portfolio after 2008. (Analysts’ target: $15.00).

COMMENT

A regional US bank. US banks are certainly not expensive, and this is just trading at BV, about 15X earnings. The key to all these banks is that there will be a slightly higher yield curve, allowing them to borrow Short and lend out Longer. Certain aspects of Dodd Frank hurt regional banks more than bigger banks, and if they can make that less onerous for regional banks, that will really help them and save them a lot of cost. This bank can also grow by acquisitions, which he expects will happen. (See Top Picks.)

DON'T BUY
Their performance has been typical of other regional banks in the US. The yield curve has taken the wind out of the banks' sails. This is a good company, although not a star. It is riskier than many others and would not be his favorite.