People's United Financial, Inc. - Growth & Income
October 26 2011 - 8:00PM
Zacks
Although many banks are still struggling to generate strong loan
growth and credit quality,
People's United Financial, Inc.
(PBCT) has managed to buck this trend.
The company recently reported strong third quarter
results marked by stellar organic loan growth and solid credit
quality. Earnings per share more than doubled year-over-year and
came in 12% ahead of the Zacks Consensus Estimate, prompting
analysts to raise their estimates for the remainder of the
year.
It is a Zacks #2 Rank (Buy) stock.
The company also pays a dividend that yields a
juicy 5.1%. And unlike many banks in 2008, PBCT did not cut its
dividend during the financial crisis.
Company Description
People's United Financial is a bank with 372
branches in Connecticut, Massachusetts, Vermont, New York, New
Hampshire and Maine. The company was founded in 1842 and is
headquartered in Bridgeport, Connecticut.
It has a market cap of $4.7 billion.
Third Quarter Results
People's United Financial reported better than
expected results for the third quarter of 2011 on October 20.
Earnings per share came in at 19 cents, beating the Zacks Consensus
Estimate by 2 cents. It was a whopping 138% increase over the same
quarter in 2010.
Net interest income surged 37% year-over-year
driven by solid organic loan growth and a 37 basis point expansion
in the net margin to a solid 4.11%. Meanwhile, non-interest income
jumped 25% over the same period.
Credit quality was strong considering the terrible
housing market and sluggish economy. Net loan charge offs were just
0.27% of average loans, down 31 basis points from the same quarter
in 2010 and well below the industry average.
The company managed its operating expenses well
too, as the efficiency ratio improved from 71.2% to 63.1% in the
quarter.
Strong Growth Ahead
Following the company's strong Q3 results, analysts
mostly raised their estimates for the remainder of 2011, sending
the stock to a Zacks #2 Rank (Buy).
Based on consensus estimates, analysts project
strong earnings growth from People's United Financial over the next
two years. The 2011 Zacks Consensus Estimate is $0.67, representing
86% EPS growth over 2010. The 2012 consensus estimate is 28% higher
at $0.86.
Analysts expect the company to grow its bottom line
through continued commercial loan growth, cost containment and
stock buybacks.
Big Dividend
In addition to strong earnings growth, People's
United Financial pays a dividend that yields a juicy 5.1%. As you
can see in the chart below, the company has steadily increased its
dividend over the last decade, even during the Great Recession:
![PBCT: People's United Financial, Inc. Dividend History PBCT: People's United Financial, Inc.](http://www.zacks.com/images/upload_dir/1319643792.jpg)
Reasonable Price
The valuation picture looks reasonable too. Shares
trade at 14.8x 12-month forward earnings, about half its 10-year
median of 29.4x.
Its price to book ratio is only 0.9, in-line with
the peer group.
The Bottom Line
With strong earnings growth, solid credit quality,
rising earnings estimates, a hefty 5.1% dividend yield and
reasonable valuation, People's United Financial offers investors
excellent total return potential.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Co-Editor of the
Reitmeister Value Investor.
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