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Momentum

Earnings momentum for Cardinal Financial Corp. (CFNL - Snapshot Report) has been advancing since this regional bank reported its sixth straight quarterly beat in late October. Every earnings estimate for the company has been revised higher in the past 60 days. Moreover, this Zacks #1 Rank (Strong Buy) hit a new 52-week high on December 20th, after announcing a dividend hike on December 10th. With a robust year-to-date return of 53.3% and an expected long-term earnings growth rate of 18%, this stock looks like a solid momentum pick.

Impressive Q3

Cardinal Financial’s third-quarter earnings of 48 cents per share outpaced the Zacks Consensus Estimate by 54.8% and the year-ago earnings by 65.5%. Solid top-line growth led to the strong results, partially offset by a rise in operating expenses.

Net interest income surged 17.7% year over year to $23.7 million. Likewise, non-interest income jumped 48.0% to $22.2 million, primarily driven by huge increases in title insurance & other income and loan fees. Non-interest expenses rose 17.7% to $22.3 million, mainly reflecting a 44.0% increase in salaries and benefits costs.

Asset quality continued to improve during the quarter. As of September 30, 2012, total non-accrual loans fell 18.1% year over year to $8.8 million. Likewise, the allowance for loan losses was 1.53% of loans receivable, down 7 basis points from the previous year. Moreover, the provision for loan losses plummeted 48.0% from the year-ago quarter to $1.5 million.

Hike in Dividend

On December 10, Cardinal Financial’s board of directors enhanced the first quarter 2013 common stock cash dividend by 25% to 5 cents per share. The dividend will be paid on December 28 to shareholders of record as of the close of business on December 17.

Earnings Momentum on an Upswing

All 9 earnings estimates for 2012 have advanced in the past 60 days, boosting the Zacks Consensus Estimate by 25.2% to $1.49. This reflects a year-over-year improvement of 58.0%. For 2013 as well, all 9 estimates moved north over the same time frame, helping the Zacks Consensus Estimate advance 23.9% to $1.40.

Reasonable Valuation

Cardinal Financial currently trades at 11.0x 12-month forward earnings, a 26% discount to the peer group average of 14.9x. Its price to book ratio of 1.7 is at a 42% premium to the peer group average of 1.2.

The company has a trailing 12-month ROE of 14.9%, compared with the peer group average of 9.2%. This implies that the company reinvests its earnings more efficiently than its peer group.

Chart Shows Strength

Cardinal Financial has witnessed strong price momentum since the third quarter earnings release. Moreover, the company has been continuously outperforming its 200-day moving average over the past year. The year-to-date return for the stock is 53.3% compared with the S&P 500’s return of 13.7%.

Cardinal Financial provides various commercial and retail banking products and services in northern Virginia and the greater Washington D.C. area through 27 banking offices. Founded in 1997, the company has a market cap of about $477.5 million. First Community Bancshares, Inc. (Bluefield) (FCBC) and Omniamerican Bancorp, Inc. (OABC) are the other Zacks #1 Rank (Strong Buy) stocks in the same industry.


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