Following Old National Bancorp’s (ONB - Free Report) announcement of its decision to acquire Anchor Bancorp, Inc. in a stock and cash deal, Moody's Investors Service downgraded the company’s outlook from stable to negative. However, Old National’s long-term issuer and senior unsecured ratings were affirmed at A3.
Although the acquisition will help Old National to expand its operations into the vibrant growth markets of Minnesota and add low-cost core deposits, Moody’s believes that it might hamper the company’s capital and liquidity position.
Also, this out-of-market acquisition might increase the company’s credit and operational risks.
Per Moody’s, Old National’s tangible common equity (TCE) to risk-weighted asset ratio has been declining for the last few years. Since the acquisition will expand the company’s risk-weighted assets and increase its goodwill, its capital ratios are likely to be pressurized further.
Although, Old National’s capital and liquidity positions seem weak, the company boasts solid credit quality. It has a strong core deposit base and a solid earnings generation capacity, which helps it to maintain its sustainable market position in Indiana. Also, the company has been successful in managing credit risks in the past. It is on account of these positives that the company’s ratings were affirmed by Moody’s.
According to Moody’s, a rating upgrade for Old National could happen only if the company is successful in improving its capital and liquidity position. On the other hand, the company’s ratings could be downgraded further if its capital or liquidity position does not bounce back to the prior levels and if its underwriting standards become more aggressive.
Old National stock has gained nearly 22.1% in the last 12 months, underperforming the 24.1% growth for the industry it belongs to.
Currently, the company carries a Zacks Rank #2 (Buy).
Some top-ranked stocks in the finance space worth considering are Carolina Financial Corporation (CARO - Free Report) , The Bank of New York Mellon Corporation (BK - Free Report) and T. Rowe Price Group, Inc. (TROW - Free Report) .
Carolina Financial witnessed an upward earnings estimate revision of 4.5% for the current year, over the last 60 days. Its share price has increased 59.5% in the last one year. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BNY Mellon carries a Zacks Rank #2. For the current year, its Zacks Consensus Estimate was revised 1.4% upward in the last 60 days. The company’s share price has increased 35% in the last one year.
T. Rowe Price Group also carries a Zacks Rank #2. The company witnessed an upward earnings estimate revision of 3.4% for the current year, over the last 60 days. Its share price has increased 20.5% in the last one year.
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