During the last earnings season, the Finance sector was one of the best performers. Despite inflation-related issues and rising chances of political uncertainty, we can add some banking stocks to our portfolio based on the banks’ strong fundamentals and solid long-term prospects.
With organic and inorganic growth strategies, as well as a strong capital position, M&T Bank Corporation (MTB - Free Report) appears to be one such stock. The company’s focus on the most attractive business mixes in the banking industry to tackle macroeconomic headwinds and strategic priorities, including core technology infrastructure, is anticipated to yield positive results for the stock.
M& T Bank not only beat estimates in Q2, but also has been witnessing upward estimate revisions, reflecting analysts’ optimism about its future prospects. Over the last 60 days, the Zacks Consensus Estimate for both 2017 and 2018 inched up marginally.
Further, shares of this Zacks Rank #2 (Buy) stock have gained around 32% over the past year compared with 34.3% growth recorded by the industry it belongs to.
Notably, M&T Bank has a number of other aspects which make it an attractive investment option.
Why M&T Bank is a Golden Egg
Revenue Growth: M&T Bank continues to make steady progress toward bolstering its revenues. Since 2008, the company has recorded a consistent rise in net interest income. Over the last six years (ended December 2016), it has grown at a compound annual growth rate (CAGR) of nearly 7.7%, with the trend continuing in the first six months of 2017 as well.
The company’s projected sales growth (F1/F0) of 6.3% (as against the industry average of about 6.22%) indicates constant upward momentum in revenues.
Earnings Per Share Strength: Earnings are anticipated to display an upswing in the near term, as the company’s projected EPS growth (F1/F0) is 14.7% compared to the industry average rate of 12.6%. Also, M&T Bank recorded an average positive earnings surprise of 4.66%, over the trailing four quarters.
Inorganic Growth Routes: Given its robust liquidity position, M&T Bank is well positioned to grow on the back of acquisitions. The growth has been reflected in the company’s accomplishment of several major acquisitions in and out of the United States, in the last several years. The completion of the merger with Hudson City in November 2015 expanded the company’s retail branch network in the Eastern United States, with access to 135 Hudson branches, situated primarily in New Jersey. Further, product and balance-sheet diversification, stemming from the acquisition, will likely support the company’s top line.
Steady Capital Deployment: M&T Bank’s capital deployment activities remain impressive. The company’s 2017 capital plan was approved by the Fed. The plan included share buyback of up to $900 million over the four-quarter period, effective July 2017. Further, it included a dividend hike on common stock in the range of 5-80 cents per share to be provided in second-quarter 2018. The latest quarterly common stock dividend hike was 7% in February 2017.
Stock is Undervalued: M&T Bank has P/E ratio and P/B ratio of 16.2 and 1.52 compared to the S&P 500 average of 19.11 and 3.14, respectively. Based on these ratios, the stock seems undervalued.
Strong Leverage: M&T Bank’s debt/equity ratio is valued at 0.51 compared to the industry average of 0.88, indicating relatively lower debt burden. It highlights the financial stability of the company even in adverse economic conditions.
Stocks to Consider
BancFirst Corporation (BANF - Free Report) has been witnessing upward estimate revisions for the last 60 days. Additionally, the stock jumped over 18.6% over the past six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
State Street Corporation (STT - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 25.4% over the last six months. It holds a Zacks Rank #2, at present.
The PNC Financial Services Group, Inc. (PNC - Free Report) has been witnessing upward estimate revisions for the last 60 days. Over the last six months, the company’s share price has been up more than 10%. It also carries a Zacks Rank #2.
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