Hudson City Bancorp Stays a Sell

Though Hudson City Bancorp, Inc. (HCBK - Analyst Report) does not participate in subprime loans, we fear that a viral type contagion might creep upwards and negatively impact its mortgage loan portfolio. The recent rate cuts by the Fed to reverse the subprime crisis will take some time. However the company has benefited from an improved yield curve, followed by the recent rate cuts by the Fed.

The negatives with respect to credit quality for the banking industry has yet to fully been realized and should continue to weigh on the industry as home sale continue to wane at this time. While the shares of HCBK have rebounded, we will maintain our Sell rating until sustainable data points have emerged.

HCBK currently trades at 18.6x the consensus forward estimate, a 39% discount to the peer group median. Our new six-month target price of $15.50 per share equates to a P/B multiple of1.60x our projected book value for 4Q08 of $9.70 per share. We view the annual dividend as secure, implying a potential total return of -11.7% over the next six months.

Read the full analyst report on HCBK