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Bet on 3 Bank Stocks with Low Debt Exposure Amid Virus Woes
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The coronavirus outbreak in mid-March disrupted business activities globally. To date, many industries have to face difficulties because of the uncertain economic environment.
Some companies within industries like retail and restaurants even had to file for bankruptcy because of lack of business. Although now the lockdown has been lifted in most of the countries and companies have started to resume work, the economic crisis that ensued the pandemic is not expected to end anytime soon.
Like all industries and sectors, the banking industry had to bear the brunt of the pandemic. In the first half of this year, majority of the banks reported significantly higher provisions because of fears related to the pandemic and the economic slowdown, which adversely impacted their earnings.
As business activities came to a grinding halt, the lending scenario was also not great. Along with muted loan growth, near-zero interest rates have been other negatives for banks. Because of such low rates, banks’ interest income and net interest margins (one of the key metrics for gauging profitability) have been adversely impacted to an extent.
In fact, the situation worsens if banks have significant debt exposure. For banks that use relatively high amounts of debt to finance their operations, it becomes difficult to survive if the economic situation deteriorates significantly as they will not be able to make timely interest payments.
However, for banks with relatively lower debt exposure, surviving amid the current crisis becomes easier. Banks that do not have any significant amount of debt maturing in the near term or have total debt less than their current cash balance are less likely to default even if the economic situation worsens.
Thus, although banks are facing difficulties amid the current economic crisis, there are some banks with low debt exposure that remain good investment options.
Bank Stocks Worth Considering
With the help of the Zacks Stock Screener, we have selected three stocks from the banking sector that investors can consider despite the ongoing crisis. These stocks have a total debt to total capital less than their respective industries. Also, their current times-interest-earned ratio is higher than the industry average.
Community Bank System, Inc. (CBU - Free Report) : The company provides various banking and other financial services to retail, commercial and municipal customers. Headquartered in DeWitt, NY, the company has a market cap of more than $3.2 billion.
As of Jun 30, 2020, its total debt stood at $269.3 million, significantly lower than the cash and cash equivalents balance of $1.32 billion. Its total debt to total capital at the end of second-quarter 2020 was 4.6% compared with the industry’s 31.9%. Its current times-interest-earned ratio of 37.5 is above the industry average of 6.2.
FB Financial Corporation (FBK - Free Report) : Headquartered in Nashville, TN, the company, which provides various commercial and consumer banking services, has a market cap of $847.2 million.
As of Jun 30, 2020, its total debt stood at $362.5 million, lower than the cash and cash equivalents balance of $717.6 million. Its total debt to total capital at the end of the second quarter was 4% compared with the industry’s 31.9%. Its times-interest-earned ratio of 19.5 is above the industry average of 6.2.
The Bancorp, Inc. (TBBK - Free Report) : The company, headquartered in Wilmington, DE, has a market cap of $524.1 million and offers banking products and services. As of Jun 30, 2020, its total debt was $54.1 million, while its cash and cash equivalents balance stood at $480.7 million. Also, its total debt to total capital at the end of the second quarter was 9.2% compared with the industry’s 31.9%. Its times-interest-earned ratio of 28.1 compares favorably with the industry’s 6.2.
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Bet on 3 Bank Stocks with Low Debt Exposure Amid Virus Woes
The coronavirus outbreak in mid-March disrupted business activities globally. To date, many industries have to face difficulties because of the uncertain economic environment.
Some companies within industries like retail and restaurants even had to file for bankruptcy because of lack of business. Although now the lockdown has been lifted in most of the countries and companies have started to resume work, the economic crisis that ensued the pandemic is not expected to end anytime soon.
Like all industries and sectors, the banking industry had to bear the brunt of the pandemic. In the first half of this year, majority of the banks reported significantly higher provisions because of fears related to the pandemic and the economic slowdown, which adversely impacted their earnings.
As business activities came to a grinding halt, the lending scenario was also not great. Along with muted loan growth, near-zero interest rates have been other negatives for banks. Because of such low rates, banks’ interest income and net interest margins (one of the key metrics for gauging profitability) have been adversely impacted to an extent.
In fact, the situation worsens if banks have significant debt exposure. For banks that use relatively high amounts of debt to finance their operations, it becomes difficult to survive if the economic situation deteriorates significantly as they will not be able to make timely interest payments.
However, for banks with relatively lower debt exposure, surviving amid the current crisis becomes easier. Banks that do not have any significant amount of debt maturing in the near term or have total debt less than their current cash balance are less likely to default even if the economic situation worsens.
Thus, although banks are facing difficulties amid the current economic crisis, there are some banks with low debt exposure that remain good investment options.
Bank Stocks Worth Considering
With the help of the Zacks Stock Screener, we have selected three stocks from the banking sector that investors can consider despite the ongoing crisis. These stocks have a total debt to total capital less than their respective industries. Also, their current times-interest-earned ratio is higher than the industry average.
For all the three stocks, which currently carry a Zacks Rank #2 (Buy), their total debt is less than their cash balance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are the stocks worth betting on:
Community Bank System, Inc. (CBU - Free Report) : The company provides various banking and other financial services to retail, commercial and municipal customers. Headquartered in DeWitt, NY, the company has a market cap of more than $3.2 billion.
As of Jun 30, 2020, its total debt stood at $269.3 million, significantly lower than the cash and cash equivalents balance of $1.32 billion. Its total debt to total capital at the end of second-quarter 2020 was 4.6% compared with the industry’s 31.9%. Its current times-interest-earned ratio of 37.5 is above the industry average of 6.2.
FB Financial Corporation (FBK - Free Report) : Headquartered in Nashville, TN, the company, which provides various commercial and consumer banking services, has a market cap of $847.2 million.
As of Jun 30, 2020, its total debt stood at $362.5 million, lower than the cash and cash equivalents balance of $717.6 million. Its total debt to total capital at the end of the second quarter was 4% compared with the industry’s 31.9%. Its times-interest-earned ratio of 19.5 is above the industry average of 6.2.
The Bancorp, Inc. (TBBK - Free Report) : The company, headquartered in Wilmington, DE, has a market cap of $524.1 million and offers banking products and services. As of Jun 30, 2020, its total debt was $54.1 million, while its cash and cash equivalents balance stood at $480.7 million. Also, its total debt to total capital at the end of the second quarter was 9.2% compared with the industry’s 31.9%. Its times-interest-earned ratio of 28.1 compares favorably with the industry’s 6.2.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
See their latest picks free >>