It has been about a month since the last earnings report for People's United . Shares have added about 4.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is People's United due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
People's United Q3 Earnings Beat, Revenues Increase
People's United reported third-quarter 2019 operating earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate by a penny. Also, the bottom line increased 3% year over year.
Third-quarter results reflected improvement in loans balance and a strong capital position. Also, higher fee income and decline in provisions supported the company’s results. However, elevated expenses and margin contraction were major drags.
Net income available to common shareholders was $131.6 million compared with $113.5 million reported in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Revenues were up 14% year over year to $454.7 million in the third quarter. However, the top line lagged the Zacks Consensus Estimate of $455.5 million.
Net interest income, on a fully-taxable basis, totaled $348.7 million, up 13.8% year over year. Nevertheless, net interest margin contracted 3 basis points (bps) to 3.12%.
Non-interest income climbed 14.8% year over year to $106 million. Rise in almost all components of income led to this upside. This was partially offset by lower investment management fees and brokerage commissions.
Non-interest expenses jumped 16.6% on a year-over-year basis to $281.4 million. Rise in mostly all components led to higher expenses.
Efficiency ratio was 56.8% compared with 56.7% in the prior-year quarter. An increase in the ratio indicates decline in profitability.
As of Sep 30, 2019, total loans were $38.8 billion, up slightly from the prior quarter. However, total deposits dipped approximately 2% sequentially to $38.6 billion.
Credit Quality: A Mixed Bag
As of Sep 30, 2019, non-performing assets were $182 million, up 5.2% year over year. Ratio of non-performing loans to total originated loans contracted 1 bp to 0.56%.
However, net loan charge-offs declined 17.1% year over year to $4.5 million. Net loan charge-offs as a percentage of average total loans were 0.06% on an annualized basis, down 3 bps. Provision for loan losses was $7.8 million, down 4.9%.
Capital Position and Profitability Ratios
As of Sep 30, 2019, total risk-based capital ratio decreased to 12% from 12.8% recorded a year ago. Tangible equity ratio was 7.8%, up from 7.6%.
The company’s profitability ratios were strong as well. Return on average tangible stockholders’ equity was 14%, down from the prior-year quarter’s 14.5%. Return on average assets of 1.05% edged down from 1.06%.
2019 Outlook (excludes United Financial Bancorp acquisition)
Loan portfolio in the range of 10% to 12% on period-end basis is anticipated. This goal excludes the transactional portion of New York multifamily portfolio, which is in runoff mode. Management expects the runoff in the transactional New York multifamily portfolio to be $200-$300 million.
Deposits are projected to grow 10-12% on period-end basis.
Net interest income is projected to grow in the range of 11-13%. This is based on the expectation of NIM in the range of 3.05%-3.15%, on assumption of 25 bps decreases in fed funds during the year. Further, the company expects non-interest income to rise 2-4%.
Management expects expenses (excluding merger-related expenses) to be in the range of $1.06-$1.08 billion. Deposits costs are expected to escalate for 2 to 4 quarters further, following the end of the Fed tightening.
The company expects to maintain excellent credit quality with provisions in the range of $35-$45 million.
Effective tax rate is expected to remain in the range of 20-22%.
The company expects Common equity tier 1 capital ratio to be between 10% and 10.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, People's United has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, People's United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is People's United (PBCT) Up 4.4% Since Last Earnings Report?
It has been about a month since the last earnings report for People's United . Shares have added about 4.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is People's United due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
People's United Q3 Earnings Beat, Revenues Increase
People's United reported third-quarter 2019 operating earnings of 34 cents per share, which surpassed the Zacks Consensus Estimate by a penny. Also, the bottom line increased 3% year over year.
Third-quarter results reflected improvement in loans balance and a strong capital position. Also, higher fee income and decline in provisions supported the company’s results. However, elevated expenses and margin contraction were major drags.
Net income available to common shareholders was $131.6 million compared with $113.5 million reported in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Revenues were up 14% year over year to $454.7 million in the third quarter. However, the top line lagged the Zacks Consensus Estimate of $455.5 million.
Net interest income, on a fully-taxable basis, totaled $348.7 million, up 13.8% year over year. Nevertheless, net interest margin contracted 3 basis points (bps) to 3.12%.
Non-interest income climbed 14.8% year over year to $106 million. Rise in almost all components of income led to this upside. This was partially offset by lower investment management fees and brokerage commissions.
Non-interest expenses jumped 16.6% on a year-over-year basis to $281.4 million. Rise in mostly all components led to higher expenses.
Efficiency ratio was 56.8% compared with 56.7% in the prior-year quarter. An increase in the ratio indicates decline in profitability.
As of Sep 30, 2019, total loans were $38.8 billion, up slightly from the prior quarter. However, total deposits dipped approximately 2% sequentially to $38.6 billion.
Credit Quality: A Mixed Bag
As of Sep 30, 2019, non-performing assets were $182 million, up 5.2% year over year. Ratio of non-performing loans to total originated loans contracted 1 bp to 0.56%.
However, net loan charge-offs declined 17.1% year over year to $4.5 million. Net loan charge-offs as a percentage of average total loans were 0.06% on an annualized basis, down 3 bps. Provision for loan losses was $7.8 million, down 4.9%.
Capital Position and Profitability Ratios
As of Sep 30, 2019, total risk-based capital ratio decreased to 12% from 12.8% recorded a year ago. Tangible equity ratio was 7.8%, up from 7.6%.
The company’s profitability ratios were strong as well. Return on average tangible stockholders’ equity was 14%, down from the prior-year quarter’s 14.5%. Return on average assets of 1.05% edged down from 1.06%.
2019 Outlook (excludes United Financial Bancorp acquisition)
Loan portfolio in the range of 10% to 12% on period-end basis is anticipated. This goal excludes the transactional portion of New York multifamily portfolio, which is in runoff mode. Management expects the runoff in the transactional New York multifamily portfolio to be $200-$300 million.
Deposits are projected to grow 10-12% on period-end basis.
Net interest income is projected to grow in the range of 11-13%. This is based on the expectation of NIM in the range of 3.05%-3.15%, on assumption of 25 bps decreases in fed funds during the year. Further, the company expects non-interest income to rise 2-4%.
Management expects expenses (excluding merger-related expenses) to be in the range of $1.06-$1.08 billion. Deposits costs are expected to escalate for 2 to 4 quarters further, following the end of the Fed tightening.
The company expects to maintain excellent credit quality with provisions in the range of $35-$45 million.
Effective tax rate is expected to remain in the range of 20-22%.
The company expects Common equity tier 1 capital ratio to be between 10% and 10.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, People's United has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, People's United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.