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M&T Bank Corp: The Best Bank Stock in the KBW Index: February 1, 2011
The overall theme from Andrew Upward’s January 26 piece from Fidelity Capital Markets was that investors might be frustrated in their expectations for the performance of
bank stocks to catch up to the broader market. He points out that there were at least two recent periods where the S&P 500 outperformed the 24 bank stocks in the Keefe,
Bruyette & Woods Bank Sector Index, and that the mid-2000 reflation dynamics that helped bank stocks back then are currently not present.
While that may be the case, there may be a few exceptions as reflected in surging ROEs for some banks. What is driving these expanding ROEs? The reflation of previously
written off bad assets? Better credit quality of bank customers? Lower ongoing write-offs?
Fortunately for our clients, one does not have to be an Financial sector expert to recognize that bank ROEs have been surging. By ranking Bank stocks by four key factors – 1)
Relative Value; 2) Operating Momentum; 3) Analyst Revision Momentum; and 4) Fundamental Quality – we can find a number of attractive bank stock candidates for short-term
and long-term positions.
Three banks in the KBW Bank Sector Index (BKX) look particularly attractive, with two of them currently part of our high-turnover model portfolios (including a real model based
on actual trade data). The three stocks are Capital One Financial Corp. (COF), PNC Financial Services Group Inc. (PNC) and M&T Bank Corp. (MTB). Not only do these stocks
look attractive within the KBW index, but according to our measures these are currently some of the best stock ideas in the entire Financial sector right now. COF is ranked
5,5,5,4; PNC is ranked 4,4,4,4; and MTB is ranked 3,4,5,5.
Based on our models, it appears that ROE may have peaked for PNC and COF in the latest quarter, but this forecast is of course not etched in stone. We would give them the
benefit of doubt since it is possible estimates may continue to rise, the companies may continue to report "surprisingly" good financial results and find additional ways to cut
costs and improve operating efficiency. Whether one believes in this scenario or not may be largely irrelevant -- if a portfolio manager is required to own a certain number of
Financial sector stocks he would do well to focus his time learning about the relatively best three of them.
We have seen East West Bancorp (EWBC) mentioned in tandem with MTB as some investors' favorite stock ideas. EWBC is currently ranked 2,5,5,5 -- by our measure it has
entered growth territory as opposed to GARP. Since we owned EWBC as a 3,4,5,5 stock since November we have decided to keep it in our portfolio. We prefer not to
recommend growth stocks as initial purposes, but we like the idea of holding on to a GARP stock that has transformed into a high-quality growth stock; we have seen similar
transformations in rankings with stocks like Apple Inc. (AAPL), Neflix (NFLX) and Chipotle (CMG). ROE for this bank is also forecast to improve over 2011.
In our opinion, COF, MTB and PNC are the relatively best bank stock ideas at the current moment, and EWBC is intriguing as well. Of these four, we think MTB could prove to be
one of the best Financial sector ideas; it certainly deserves further study as a long-term holding. Below we provide summary data tables on stocks in the KBW Bank Sector
Index, including some additional incremental data for COF, PNC, MTB and EWBC.
Annualized Analyst
Market 1yr 3-Month Relative Operating Revisions Fundament
Sector Base Long Portfolio Ticker Cap Price 1yr Beta Volatility Volatility Value Momentum Momentum al Quality
Financials Bank of America Corporation BAC 137,158 13.60 1.39 34.0% 34.9% 1 1 2 2
Financials BB & T Corp. BBT 18,929 27.26 1.22 30.6% 31.6% 2 1 4 1
Financials The Bank of New York Mellon Corporation
BK 38,338 30.88 1.15 24.4% 23.9% 3 5 4 4
Financials Citigroup, Inc. C 137,155 4.72 1.42 34.9% 29.5% 3 4 2 2
Financials Commerce Bancshares Inc. CBSH 3,578 41.06 1.01 20.6% 17.9% 3 3 4 5
Financials Cullen/Frost Bankers, Inc. CFR 3,558 58.22 0.87 19.1% 19.0% 3 2 1 4
Financials Comerica Incorporated CMA 6,707 37.99 1.52 33.3% 29.9% 2 4 5 4
Financials Capital One Financial Corp. COF 21,843 48.24 1.28 33.2% 27.7% 5 5 5 4
Financials Fifth Third Bancorp FITB 13,613 14.64 1.79 37.5% 33.6% 2 3 4 2
Financials First Niagara Financial Group Inc.FNFG 2,923 13.98 0.82 21.0% 19.1% 2 2 2 4
Financials Huntington Bancshares Inc. HBAN 6,104 7.07 1.98 46.4% 34.6% 2 4 5 4
Financials JPMorgan Chase & Co. JPM 174,115 44.54 1.10 26.3% 25.5% 4 5 5 2
Financials KeyCorp KEY 7,741 8.79 1.68 38.1% 32.8% 3 4 5 1
Financials M&T Bank Corp. MTB 10,342 86.35 1.14 31.8% 21.7% 3 4 5 5
Financials Northern Trust Corporation NTRS 12,523 51.69 0.90 21.2% 20.7% 3 2 1 4
Financials New York Community Bancorp Inc. NYB 7,959 18.27 0.79 20.5% 18.9% 3 4 1 2
Financials People's United Financial Inc. PBCT 4,536 12.96 0.82 20.6% 18.0% 1 1 5 2
Financials PNC Financial Services Group Inc.
PNC 31,606 60.11 1.50 32.4% 26.8% 4 4 4 4
Financials Regions Financial Corp. RF 8,642 6.88 1.77 43.8% 45.2% 1 5 2 1
Financials SunTrust Banks, Inc. STI 14,803 29.58 1.80 39.4% 34.7% 1 5 5 2
Financials State Street Corp. STT 23,299 46.41 1.36 28.0% 25.6% 3 2 2 2
Financials U.S. Bancorp USB 51,411 26.80 1.19 25.3% 23.3% 3 2 2 4
Financials Wells Fargo & Company WFC 167,120 31.84 1.51 32.7% 27.5% 4 2 1 4
Financials Zions Bancorp. ZION 4,283 23.43 1.95 47.0% 31.6% 1 4 1 1
Highlighted stocks are the most attractive ideas in the KBW Bank Sector Index.
Annualized Analyst
Market 1yr 3-Month Relative Operating Revisions Fundament
Sector Base Long Portfolio Ticker Cap Price 1yr Beta Volatility Volatility Value Momentum Momentum al Quality
Financials Ares Capital Corporation ARCC 3,168 16.45 1.26 28.4% 22.3% 5 5 4 4
Financials Sumitomo Mitsui Financial GroupSMFG
Inc. 48,784 6.87 0.60 24.7% 29.7% 5 5 5 4
Financials Capital One Financial Corp. COF 21,843 48.24 1.28 33.2% 27.7% 5 5 5 4
Financials Canadian Imperial Bank of Commerce
CM 29,845 75.71 0.99 26.2% 19.1% 4 5 4 4
Financials American Express Company AXP 52,797 43.86 1.32 30.7% 23.2% 5 4 4 4
Financials Franklin Resources Inc. BEN 26,999 120.84 1.36 28.3% 22.9% 4 4 5 5
Financials The Bank of New York Mellon Corporation
BK 38,338 30.88 1.15 24.4% 23.9% 3 5 4 4
Financials PNC Financial Services Group Inc.
PNC 31,606 60.11 1.50 32.4% 26.8% 4 4 4 4
Financials Bank of Montreal BMO 32,867 57.76 0.91 25.0% 24.3% 4 4 4 4
Financials Credicorp Ltd. BAP 8,333 104.48 0.87 24.4% 20.8% 5 3 4 5
Financials Banco de Chile BCH 11,736 84.50 0.43 26.8% 23.4% 5 3 4 5
Financials Waddell & Reed Financial Inc. WDR 3,096 36.26 1.83 36.3% 27.4% 4 3 5 4
Financials M&T Bank Corp. MTB 10,342 86.35 1.14 31.8% 21.7% 3 4 5 5
Financials T. Rowe Price Group, Inc. TROW 16,886 65.85 1.38 25.9% 23.2% 4 3 5 5
Financials Commerce Bancshares Inc. CBSH 3,578 41.06 1.01 20.6% 17.9% 3 3 4 5
Financials East West Bancorp, Inc. EWBC 3,191 21.56 1.84 40.2% 29.6% 2 5 5 5
Source: Ascendere Associates LLC
Highlighted stocks are currently owned held in our long model portfolios.
Financials
Consumer Finance
Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.
$90
25.0
$80
$70
20.0
P
$60
P r
/ 15.0 $50
i
E $40 c
10.0
$30
e
$20
5.0
$10
0.0 $-
O-01
O-02
O-03
O-04
O-05
O-06
O-07
O-08
O-09
O-10
A-08
A-09
A-10
A-01
A-02
A-03
A-04
A-05
A-06
A-07
J-01
J-04
J-05
J-06
J-07
J-11
J-01
J-02
J-02
J-03
J-03
J-04
J-05
J-06
J-07
J-08
J-08
J-09
J-09
J-10
J-10
P/E Average +1 St. Dev. -1 St. Dev. Stock Price
Max up to ten years Three years One year One year historically implied target range
01/30/01 to 02/01/11 02/05/08 to 02/01/11 02/02/10 to 02/01/11 NTM EPS Target $ 49.83
Max PE 28.0 02/03/09 Max PE 28.0 02/03/09 Max PE 20.0 04/13/10 Max EPS $ 6.50 $ 130 161%
Average PE 12.3 Average PE 12.3 Average PE 12.5 Average EPS $ 5.20 $ 65 30%
Min PE 5.7 03/11/03 Min PE 5.7 03/11/03 Min PE 7.6 11/23/10 Min EPS $ 4.15 $ 31 -37%
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Financials
Regional Banks
Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.
$80
30.0
$70
25.0
$60
P
P 20.0
$50 r
/ i
$40
15.0
E c
10.0
$30
e
$20
5.0
$10
0.0 $-
O-01
O-02
O-03
O-04
O-05
O-06
O-07
O-08
O-09
O-10
A-08
A-09
A-10
A-01
A-02
A-03
A-04
A-05
A-06
A-07
J-01
J-04
J-05
J-06
J-07
J-11
J-01
J-02
J-02
J-03
J-03
J-04
J-05
J-06
J-07
J-08
J-08
J-09
J-09
J-10
J-10
P/E Average +1 St. Dev. -1 St. Dev. Stock Price
Max up to ten years Three years One year One year historically implied target range
01/30/01 to 02/01/11 02/05/08 to 02/01/11 02/02/10 to 02/01/11 NTM EPS Target $ 62.25
Max PE 29.4 10/13/09 Max PE 29.4 10/13/09 Max PE 16.9 04/20/10 Max EPS $ 6.50 $ 110 77%
Average PE 13.1 Average PE 13.1 Average PE 11.7 Average EPS $ 5.65 $ 66 7%
Min PE 5.5 01/20/09 Min PE 5.5 01/20/09 Min PE 9.3 08/24/10 Min EPS $ 5.00 $ 47 -25%
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Financials
Regional Banks
Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.
$120
25.0
$100
20.0
P
P $80 r
/ 15.0
i
$60
E c
10.0
$40
e
5.0
$20
0.0 $-
O-01
O-02
O-03
O-04
O-05
O-06
O-07
O-08
O-09
O-10
A-08
A-09
A-10
A-01
A-02
A-03
A-04
A-05
A-06
A-07
J-01
J-04
J-05
J-06
J-07
J-11
J-01
J-02
J-02
J-03
J-03
J-04
J-05
J-06
J-07
J-08
J-08
J-09
J-09
J-10
J-10
P/E Average +1 St. Dev. -1 St. Dev. Stock Price
Max up to ten years Three years One year One year historically implied target range
01/30/01 to 02/01/11 02/05/08 to 02/01/11 02/02/10 to 02/01/11 NTM EPS Target $ 87.43
Max PE 24.1 05/05/09 Max PE 24.1 05/05/09 Max PE 20.5 04/06/10 Max EPS $ 6.89 $ 141 62%
Average PE 15.7 Average PE 15.7 Average PE 16.1 Average EPS $ 6.21 $ 100 14%
Min PE 9.6 01/20/09 Min PE 9.6 01/20/09 Min PE 13.0 10/26/10 Min EPS $ 5.19 $ 67 -23%
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Financials
Regional Banks
Source: Capital IQ data and estimates, and Ascendere Associates LLC data and estimates.
$45
35.0
$40
30.0
$35
25.0
P
$30
P r
/ 20.0 $25
i
E 15.0
$20 c
$15
e
10.0
$10
5.0
$5
0.0 $-
O-01
O-02
O-03
O-04
O-05
O-06
O-07
O-08
O-09
O-10
A-08
A-09
A-10
A-01
A-02
A-03
A-04
A-05
A-06
A-07
J-01
J-04
J-05
J-06
J-07
J-11
J-01
J-02
J-02
J-03
J-03
J-04
J-05
J-06
J-07
J-08
J-08
J-09
J-09
J-10
J-10
P/E Average +1 St. Dev. -1 St. Dev. Stock Price
Max up to ten years Three years One year One year historically implied target range
01/30/01 to 02/01/11 02/05/08 to 02/01/11 02/02/10 to 02/01/11 NTM EPS Target $ 21.96
Max PE 36.9 11/11/08 Max PE 36.9 11/11/08 Max PE 27.5 04/13/10 Max EPS $ 1.60 $ 44 100%
Average PE 16.7 Average PE 16.7 Average PE 18.3 Average EPS $ 1.49 $ 27 24%
Min PE 8.5 01/08/08 Min PE 8.5 01/08/08 Min PE 13.5 11/23/10 Min EPS $ 1.44 $ 19 -12%
Source: Capital IQ data and estimates, Ascendere Associates data and estimates.
Ascendere does not rate stocks on any scale, but does offer individual stock commentary and valuation opinions. With regard to Ascendere's portfolio
strategies, "long" or "high-quality" baskets should generally be considered buys, unless otherwise noted. Stocks in our "short" or "low-quality" baskets should
generally be considered sells, unless otherwise noted. While exceptions may occasionally occur, typically stocks in the high-quality basket are expected to
outperform the S&P 500 over a month's time and stocks in the low-quality basket are expected to underperform. A more relevant benchmark would comprise
of all stocks and ADRs that trade on major U.S. stock exchanges with a market cap above $2 billion.
Ascendere adheres to professional standards and abides by codes of ethics that put the interests of clients ahead of its own. The following are specific
disclosures made by Ascendere:
1) Ascendere may have a financial interest in the companies referred to in this report ("the Companies"). The research analyst covering the Companies
and members of the analyst's immediate family have a financial interest in one or more of the Companies.
2) Ascendere generates revenue from research subscription revenue and portfolio management fees. At any given time it may be long or short any of
the Companies.
3) Ascendere does not make a market in the securities of any of the Companies.
5) Ascendere has not managed or co-managed a public offering for any of the Companies.
6) Neither Ascendere nor any of its officers or any family member of the covering analyst serve as an officer, director or advisory board member of any
of the Companies.
7) Neither Ascendere nor any of its officers or any family member of the covering analyst beneficially own 1% or more of any class of securities of any of
the Companies.
8) The covering analyst certifies that this report accurately reflects such analyst's personal views.
Note:
We currently hold shares of ARCC, COF, AXP, PNC, WDR, TROW and EWBC in a real portfolio that we manage.