Savings and Loan industry is being aided by the spurt in mortgage refinancing on historically-low mortgage rates. However, a low interest-rate environment and the coronavirus pandemic-induced economic slowdown are resulting in subdued demand for business and consumer loans. Nevertheless, digitization and gradual reopening of the economy are anticipated to support the industry in the near term. Thus, some of the industry players like ServisFirst Bancshares ( SFBS Quick Quote SFBS - Free Report) , WSFS Financial ( WSFS Quick Quote WSFS - Free Report) , Investors Bancorp ( ISBC Quick Quote ISBC - Free Report) and Flagstar Bancorp ( FBC Quick Quote FBC - Free Report) are poised to benefit from these developments. Industry Description
The Zacks Savings and Loan industry consists of specialized U.S. banks that provide residential mortgages, commercial and industrial mortgages, home equity loans, vehicle loans and other business loans.
These institutions fund mortgages insured by the Federal Deposit Insurance Corporation. Though the firms operate similarly to commercial banks by providing various banking services, such as checking and savings accounts, these are bound to invest 65% of their asset holdings in residential mortgages. Moreover, these firms are locally owned and provide the best rates on mortgages. 3 Savings and Loan Industry Trends to Watch for Low Mortgage Rates to Support Performance: For the last few years, an improving domestic economy, lower rates and the surging demand for new residential mortgages and refinancing have been aiding the U.S. savings and loan industry. Furthermore, lesser regulatory supervisions and an improved housing market on low mortgage rates, along with the re-opening of economy post COVID-19 era, will likely drive the industry’s growth in the upcoming quarters. Soft Loan Growth is a Concern: The Fed’s slashing of interest rates to near zero this March for shielding the U.S. economy from the coronavirus mayhem has spurred demand in loans, as lower rates attract consumers. However, the prevailing impact of the COVID-19 pandemic has weighed on business activities globally, in turn, thwarting demand for commercial loans. Notably, soft consumer spending on the pandemic’s impact has also impaired consumer loan growth. Therefore, muted loan growth, along with low rates, is likely to continue hurting the companies’ net interest margins to some extent. Digitization to Provide Some Respite: In the days to come, a number of challenges will crop up for the savings and loan companies, including legacy technologies and an unbalanced customer base. Thus, these companies will need to ramp-up transition into diligently-focused, technology-driven and flexibly-operating institutions, in order to remain competitive and reap profits in the rapidly-evolving market. Zacks Industry Rank Indicates Solid Prospects
The group’s Zacks
Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. The Zacks Savings and Loan industry currently carries a Zacks Industry Rank #33, which places it at the top 13% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of bright earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Remarkably, the industry’s earnings estimates for the current year have been revised 33% upward since June 2020. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Underperforms Sector and the S&P 500
The Zacks Savings and Loan Industry, a 34-stock group within the broader Zacks
Finance Sector, has underperformed the S&P 500 and its own sector over the past year. While the stocks in this industry have collectively declined 20.3%, the S&P 500 Composite has gained 15.8%. During the same time period, the Zacks Finance Sector has lost 5.9%. One-Year Price Performance Industry’s Current Valuation
One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing finance companies because of large variations in their earnings results from one quarter to the next.
The industry currently has a trailing 12-month P/TBV of 1.21X, below the median level of 1.45X, over the past five years. This compares with the highest level of 9.88X and lowest level of 0.84X over this period. However, the industry is trading at a discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 17.86X and the median level is 10.75X. Price-to-Tangible Book Ratio (TTM) As finance stocks typically have a low P/TB ratio, comparing Savings and Loan providers with the S&P 500 might not make sense to many investors. But a comparison of the group’s P/TB ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV ratio of 3.62X and the median level of 3.49X for the same period are above the Zacks Savings and Loan industry’s respective ratios. Price-to-Tangible Book Ratio (TTM) 4 Savings and Loan Stocks to Keep a Close Eye on ServisFirst Bancshares: This Zacks Rank #2 (Buy) stock provides banking services to individual and corporate customers in the United States. Based in Birmingham, the company operates through 21 full-service banking offices. Amid the low rate environment, the company has been witnessing reduction in net interest margin and income, which is expected to prevail in the upcoming period. Nevertheless, liquidity remains strong with liquid assets to total deposits of 22%. Its shares have rallied 23.6% over the past six months. The Zacks Consensus Estimate for earnings has increased 5.6% to $3.01 and 17.7% to $2.86 for 2020 and 2021, respectively, over the past 30 days. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Price and Consensus: SFBS WSFS Financial Corporation: The company provides various banking services in the United States. The bank works with a diversified business model, and also provides equipment and small business lease financing through its leasing subsidiary, NewLane Finance, acquired in the Beneficial acquisition. This Wilmington, DE-based company is active with its capital-deployment activities, with the recent resumption of share repurchases in the last quarter. In addition, the firm is on growth path, with the recent announcement of expansion of Commercial Banking team in the Greater Philadelphia area, which forms part of its strategic plan to invest in talent and build long-term value. The Zacks Consensus Estimate for 2020 earnings has moved 19.3% north to $1.30 over the past month. The consensus estimate of $2.85 for 2021 earnings has been revised 8% upward over the same time frame. The stock presently sports a Zacks Rank of 1. Shares of the company have climbed 53.2% over the past six months. Price and Consensus: WSFS Investors Bancorp: Headquartered in Short Hills, NJ, the company provides various banking products and services to individuals and businesses in the United States. Amid the low interest-rate environment, the bank is witnessing rise in net interest margin, which is adding the profitability. This Zacks Rank #1 company completed the acquisition of Gold Coast Bancorp this year. The stock-cum-cash deal is expected to be 2.5% accretive to earnings per share, inclusive of fully phased-in cost savings. The stock has appreciated 17% in six months’ time. The Zacks Consensus Estimate for current-year earnings has moved up 12% to 84 cents in the past 30 days. Likewise, the same for 2021 has been revised 15.9% upward to 95 cents during the same time period. Price and Consensus: ISBC Flagstar Bancorp: This Zacks Rank #1 stock offers commercial and consumer banking services to individuals and businesses in the United States. Based in Troy, the company is a leading national servicer of mortgage loans and provide complementary ancillary offerings including MSR lending, servicing advance lending and MSR recapture services. Notably, the bank’s warehouse business is yielding well, with the concerted effort of reducing deposit funding costs, in turn driving the net interest margin amid the low rate environment. Shares of the company have rallied 33.3% over the past six months. The Zacks Consensus Estimate for earnings has moved 36.1% north to $8.98 and 33.9% to $5.73 for 2020 and 2021, respectively, over the past 30 days. Price and Consensus: FBC