Improving operating backdrop, rising rate environment, expectations of lesser regulations and strengthening of the domestic economy are expected to continue supporting banking stocks. Keeping this in mind, we have selected Preferred Bank (PFBC - Free Report) for your consideration.
Positive trend in estimate revisions reflect optimism regarding the company’s earnings growth prospects. The Zacks Consensus Estimate for Preferred Bank’s current-quarter earnings has moved up one cent per share over the last 30 days. Also, the current year’s earnings estimates have increased nearly 1%. As a result, the stock currently carries a Zacks Rank #2 (Buy).
The stock has surged 37.8% over the past 12 months, widely outperforming the industry’s 12.9% rally.
Here’s What Might Drive the Stock Higher
Earnings Strength: Preferred Bank recorded an earnings growth rate of 38.6% over the last three to five years compared with growth of 11.6% for the industry it belongs to. The company’s earnings growth rate for the current year is anticipated to be 30.3%, substantially higher than the industry average of 12.9%.
Moreover, the long-term (three-five years) expected EPS growth of 10% promises rewards for its shareholders. The company also has an impressive earnings surprise history, outpacing the Zacks Consensus Estimate in three of the trailing four quarters. It delivered an average positive surprise of 6.6% for this period.
Revenue Growth: Preferred Bank has been witnessing consistent improvement in revenues for the past few years. Revenues witnessed a compound annual growth rate of 18.5% over the last five years (2012-2016). Further, the top line is expected to increase 24.2% in 2017 compared with 2.8% growth for the industry.
Favorable ROE: Preferred Bank’s return on equity (“ROE”) supports its growth potential. It’s ROE of 15.2% compares favorably with the industry average of 10.2%, implying that it is efficient in using shareholders’ funds.
Stock Looks Undervalued: The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B when combined with a favorable rank — Zacks Rank #1 (Strong Buy) or 2 — offer the best upside potential.
In fact, the stock looks undervalued in terms of PEG ratio. The company’s PEG ratio of 1.79 is below the industry average of 1.97.
Other Stocks to Consider
Some other top-ranked stocks from the same space are CoBiz Financial (COBZ - Free Report) , FS Bancorp (FSBW - Free Report) and Bank of Commerce Holdings (BOCH - Free Report) .
CoBiz Financial has witnessed a positive earnings estimate revision of 6.6% for the current year over the last 60 days. Its share price has rallied 39% in the past 12 months. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
FS Bancorp has seen the Zacks Consensus Estimate for the current-year earnings being revised 2.4% upward over the last 60 days. The company’s share price has increased 67.8% in the past 12 months. The stock carries a Zacks Rank of 2.
Bank of Commerce has witnessed an upward earnings estimate revision of 9.5% for the current year over the last 60 days. Its share price has risen 44.9% in the past 12 months. The company is a Zacks #2 Ranked player.
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