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Analyst Blog

On Aug 20, 2013, we maintained our Neutral recommendation on People's United Financial Inc. (PBCT - Analyst Report), based on its healthy capital position, organic growth and prudent expense management. Yet, the recent regulatory issues and a challenging economic environment remain the major areas of concern.

Why Neutral?

People's United’s second-quarter 2013 earnings came in at 20 cents per share, edging out the Zacks Consensus Estimate by a penny. Moreover, earnings compared favorably with 18 cents per share reported in the prior quarter.

Improved credit quality, higher top line and reduced non-interest expenses were the tailwinds for the quarter. Total net loans stood at $22.7 billion, up 3.2% sequentially. Moreover, total deposits advanced slightly on a sequential basis to $22.0 billion. Non-performing assets totaled $280.5 million, down 1.6% sequentially.

People’s United has considered a number of expense savings initiatives with a goal of increasing its recurring operating income. Management expects expenses during the course of 2013 in the range of $815 million–$820 million, almost stable compared with the 2012 levels. Therefore, with these expense reduction initiatives and strengthening of the balance sheet, supported by strategic revenue initiatives, the company targets to reach an efficiency ratio of 55% in late-2014.

However, we are concerned about the regulatory issues, which are expected to pose as headwinds for People’s United’s profitability going forward. Such regulations are likely to reduce fee income growth prospects, increase compliance costs and subject the company to a number of restrictions.

Following second-quarter 2013 results, over the last 30 days, the Zacks Consensus Estimate for 2013 inched up 1.3% to 78 cents per share, while it increased 2.2% to 91 cents for 2014. Currently, People's United carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better performing stocks in the same sector include Banner Corporation (BANR - Snapshot Report), Provident Financial Holdings, Inc. and Washington Federal Inc. (WAFD - Analyst Report). All these companies carry a Zacks Rank #1 (Strong Buy).