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On May 27, 2013, we reiterated our Neutral recommendation on People's United Financial Inc. (PBCT - Analyst Report), based on its healthy capital position and reducing non-performing assets. Yet, revenue headwinds are a concern amid a tepid economic recovery, low interest rate and a tough regulatory environment. Further, with the expanding expense base, we remain somewhat skeptical about People’s United ability to augment earnings in the quarters ahead.

Why Neutral?

People's United’s first-quarter 2013 earnings came in at 18 cents per share, in line with the Zacks Consensus Estimate. Earnings compared unfavorably with $0.19 per share reported in the prior quarter but came in line with the prior-year quarter.

Lower non-performing assets and loans and deposits growth were the tailwinds for the quarter. Total net loans stood at $22 billion, up 2.3% sequentially. Moreover, total deposits advanced slightly on a sequential basis to $21.8 billion. Non-performing assets reduced 1.6% sequentially to $285.1 million as of Mar 31, 2013.

Following the dividend hike of 1.6% in Apr 2012, People’s United declared an enhanced quarterly dividend of $0.1625 per share in Apr 2013. This reflects the company’s trend of returning wealth to its shareholders, with its strong cash generating capabilities.

However, declining revenues due to a drop in the net interest and non-interest income and elevated expenses was the headwind. People's United’s total revenue, net of expense reported was $302.2 million in the quarter, down 2.3% sequentially. Moreover, results lagged the Zacks Consensus Estimate of $310.0 million. Non-interest expenses ascended 2.2% sequentially to $212 million.

Following first-quarter 2013 results, over the last 30 days, the Zacks Consensus Estimate for 2013 remained stable at 77 cents, while it increased 1.1% to 88 cents per share for 2014. Hence, People's United carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better performing stocks in the same sector include Great Southern Bancorp Inc. (GSBC - Snapshot Report), Provident Financial Holdings, Inc. (PROV - Snapshot Report) and Meta Financial Group, Inc. (CASH - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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