Median P/E 15 multiple for banks would contract to 5.3% from 14.1x to 13.3x, driven by lower prices as estimates remained relatively stable at the median, notes Sterne Agee.
Terry McEvoy and team at Sterne Agee in their research report dated August 7, 2014 titled: “The Bank Examiner-Looking for Value Post 2Q2014” have identified 11 Buy-rated stocks and one Underperform-rated stock.
Contraction in Banks’ Median P/E
Analyzing the 119 banks under their coverage, the Sterne Agee analysts note contraction in P/E 15 multiples. Delving deep into their analysis, the analysts dissected the P/E multiple into its two components which revealed that the median price (numerator) decline was 5%, while the median FY15 EPS estimate (denominator) increased 0.1%.
Clint Carlson's Carlson Capital Double Black Diamond fund returned 3.34% in August net of fees. Following this performance, the fund is up 8.82% year-to-date net, according to a copy of the firm's August investor update, which ValueWalk has been able to review. On a gross basis, the Double Black Diamond fund added 4.55% in August Read More
Thus, the analysts point out that the contraction in the Median P/E multiple was driven by lower prices as estimates remained relatively stable at the median.
As can be deduced from the following full list compiled by the analysts, the median P/E multiple contraction was 4.9% while the range was -55% to +15%.
As can be deduced from the analysts’ above coverage universe, the median FY15 EPS estimate increased 0.1%, the range was -14% to +105%, while the median price decline was 4.8% with a range of -25% to +10%.
Refreshed top picks
The following table captures current valuations in the banking sector based on the Sterne Agee analysts’ market cap, regional and thematic bank stock indexes:
Based on the recent 2Q earnings season announcements, the analysts refreshed their top picks across various market caps. Among the large-cap space, the analysts assigned ‘Buy’ rating on SunTrust Banks, Inc. (NYSE:STI) and Fifth Third Bancorp (NASDAQ:FITB), while in the mid-cap space, they believe East West Bancorp, Inc. (NASDAQ:EWBC) and Signature Bank (NASDAQ:SBNY) as ‘Buy’ candidates as growth outperformers, while PrivateBancorp Inc (NASDAQ:PVTB) and TCF Financial Corporation (NYSE:TCB) and TFS Financial Corporation (NASDAQ:TFSL) as value plays.
The Sterne Agee analysts have also upgraded last week Provident Financial Services, Inc. (NYSE:PFS) to “Buy” from “Neutral”.
As captured in the following table, the analysts have identified 11 Buy-rated stocks with a P/E15 multiple contraction larger than the median decline and a consensus FY15 EPS estimate also higher today compared to June 30. The analysts believe these 11 stocks are attractively valued today:
However, the Sterne Agee analysts have rated New York Community Bancorp, Inc. (NYSE:NYCB) as ‘Underperform’ as its P/E 15 multiple contraction was less than the median decline while the consensus FY15 EPS estimate is now lower today as compared to June 30. The analysts believe NYCB is currently overvalued.