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People's United (PBCT) Up 4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for People's United Financial, Inc. . Shares have added about 4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is PBCT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

People's United's Q1 Earnings In Line, Revenues Up

People's United reported net earnings of 30 cents per share in first-quarter 2018, in line with the Zacks Consensus Estimate. The reported figure improved 36.4% year over year.

Rising rates and higher fee income supported results. Growth in loan and deposit balances reflected organic growth. However, elevated expenses and provisions remained major drags.

Net income available to common shareholders came in at $104.4 million compared with $67.3 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Net revenues, on a fully-taxable basis, were up 14.5% year over year to $392.5 million in the quarter.

Net interest income, on a fully-taxable basis, totaled $302.1 million, up 17% year over year. Further, net interest margin expanded 23 basis points (bps) year over year to 3.05%.

Non-interest income climbed 6.7% year over year to $90.4 million. The rise in almost all components of income drove the results. These were partially offset by lower other non-interest income.

Non-interest expenses flared up 7.7% on a year-over-year basis to $243.5 million. Rise in all components, except other non-interest expenses and amortization of other acquisition-related intangible assets, led to higher expenses.

Efficiency ratio was 59.4%, in line with the prior-year period.

As of Mar 31, 2018, total loans were $32.1 billion, up 8.1% from the prior-year quarter. Furthermore, total deposits increased approximately 7.9% to $32.9 billion from the year-ago quarter.

Credit Quality: A Mixed Bag

As of Mar 31, 2018, non-performing assets were $174 million, down 4.9% year over year. Ratio of non-performing loans to total originated loans contracted 3 bps from the year-earlier quarter to 0.52%.

However, net loan charge-offs climbed 25% year over year to $3 million. Net loan charge-offs as a percentage of average total loans on an annualized basis were 0.06%, up 3 bps year over year. Provision for loan losses came in at $5.4 million, up 22.7% year over year.

Capital Position Stable, Profitability Ratios Improve

Capital ratios of People’s United displayed mixed results. As of Mar 31, 2018, total risk-based capital ratio dropped to 12.6% from 12.7% recorded in the comparable quarter last year. Tangible equity ratio was 7.3%, down from 7.4% in the year-ago quarter.

The company’s profitability ratios improved. Return on average tangible stockholders’ equity was 13.8%, up from 9.6% in the prior-year quarter. Return on average assets of 0.98% inched up from 0.70% reported in the year-earlier quarter.

2018 Outlook

Management expects loan portfolio to be up 4-6%. Deposits are projected to grow 3-5%.

Net interest income is projected to grow in the range of 10-12%. This is based on the expectation of NIM in the range of 3.05-3.15%, on assumption of 25 bps rate hike during the year. Further, the company expects non-interest income to rise 3-5%.

Management expects expenses (including merger-related expenses) to be in the range of $975-$995 million.

The company expects to maintain excellent credit quality with provisions in the range of $35-$45 million.

Effective tax rate is expected to remain in the range of 21-23%.

The company expects Common equity tier 1 ratio to be between 9.5% and 10%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

VGM Scores

At this time, PBCT has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, PBCT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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