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Will M&T Bank's (MTB) Rally Continue on Solid Fundamentals?

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Shares of M&T Bank Corporation MTB have gained 2.5% over the past six months. During the same period, the Finance sector has gained 1.4%, while the S&P 500 rallied 1%. Strong prospects, driven by steady revenue growth and solid capital position, seem to be the primary reasons for the company’s performance.

Despite facing a similar operating backdrop, particularly concerns over the outbreak of deadly coronavirus and lower interest rates, M&T Bank, with a market cap of $19.2 billion, has been able to outperform some of its peers such as U.S. Bancorp USB and Fifth Third FITB, which have lost 8.2% and 1%, respectively. Another major bank, Comerica CMA has lost 9.1% in the same time period.

Six Months Price Performance

So what is driving the stock? Let’s take a look at M&T Bank’s key metrics:

The company’s net interest income has witnessed growth every year since the financial crisis with support from rising earning assets. It recorded a compound annual growth rate (CAGR) of nearly 9.8% over the last five years (ended 2019). We expect growth in interest income in the near term as well, on the back of a decent lending scenario.

Also, revival of mortgage banking as a result of rise in refinancing activities and origination volume, and improved trading environment are expected to support M&T Bank’s top-line expansion. Over the last three years (ended 2019), it witnessed a CAGR of 5.5%

M&T Bank’s decent liquidity position has enabled it to impress investors with steady capital deployment activities. In November 2019, the company increased its quarterly common stock cash dividend by 10%. Also, it has a share buyback plan of up to $1.6 billion over the four-quarter period, effective July 2019, in place. Given its earnings strength, the bank is expected to sustain improved capital deployments and continue enhancing shareholders’ value.

However, efforts to enhance customers experience through investments in operational infrastructure and technology keep M&T Bank’s costs elevated. It witnessed a CAGR of 5.3% over the last five years (2015-2019). In the quarters ahead, we expect the company’s expense base to keep rising.

Nevertheless, the company’s return on equity of 13.37% compares favorably with the industry’s 11.95%. This reflects its efficiency in utilizing shareholders’ funds.

We believe that the above factors are enough to support a steady price rally for M&T Bank. Also, analysts are optimistic of its performance, and have thus raised its current-year earnings estimates by 3.8% to $14 over the past 60 days.

This apart, M&T Bank is part of the industry, which has a Zacks Industry Rank #27 (Top 11%). Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

M&T Bank’s strong fundamentals have helped it grab a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Given the strong U.S. economy, M&T Bank’s limited global exposure might turn out to be boon at a time like this. Thus, the stock seems to be a wise investment option.

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