FBR Capital on Financial Institutions: 2Q11 Earnings Preview: Lackluster Quarter Sets Up Buying Opportunity?
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Price: $147.89 +0.43%
Rating Summary:
15 Buy, 17 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 17
Rating Summary:
15 Buy, 17 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 17
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FBR Capital on Financial Institutions: 2Q11 Earnings Preview: Lackluster Quarter Sets Up Buying Opportunity?
FBR analyst said, "Banks could see some pressure during this quarter's earnings season, considering loan demand remains anemic, NIM is under pressure from low interest rates, and trading revenues should come down from historical strong results in recent quarters. BUT, we think this quarter is setting up to present a buying opportunity for investors willing to hold banks for the long term AFTER earnings are announced. Banks are trading at attractive levels according to our risk-adjusted valuation framework, capital levels are at historically high levels, and many of the near-term negative catalysts have played out. In general, we continue to favor larger banks due to cheaper valuations, better efficiency, and more diversified revenue sources; we are more cautious on regional banks, particularly those struggling to earn their cost of capital. We recommend PNC Financial (NYSE: PNC), JP Morgan (NYSE: JPM), and U.S. Bancorp (NYSE: USB), and note that there are company-specific opportunities among the regional banks, such as Sterling Financial (Nasdaq: STSA) and Zions Bancorporation (Nasdaq: ZION). Overall, we expect earnings to see some pressure from relatively weak mortgage banking revenue, declining NIM, and lower trading volumes. These pressures will likely be counteracted by another quarter of strong reserve releases. Longer term, we expect banks with relatively good capital positions and higher levels of C&I lending should outperform the group, since they should be able to aggressively grow their loan portfolios and return capital to shareholders."
FBR analyst said, "Banks could see some pressure during this quarter's earnings season, considering loan demand remains anemic, NIM is under pressure from low interest rates, and trading revenues should come down from historical strong results in recent quarters. BUT, we think this quarter is setting up to present a buying opportunity for investors willing to hold banks for the long term AFTER earnings are announced. Banks are trading at attractive levels according to our risk-adjusted valuation framework, capital levels are at historically high levels, and many of the near-term negative catalysts have played out. In general, we continue to favor larger banks due to cheaper valuations, better efficiency, and more diversified revenue sources; we are more cautious on regional banks, particularly those struggling to earn their cost of capital. We recommend PNC Financial (NYSE: PNC), JP Morgan (NYSE: JPM), and U.S. Bancorp (NYSE: USB), and note that there are company-specific opportunities among the regional banks, such as Sterling Financial (Nasdaq: STSA) and Zions Bancorporation (Nasdaq: ZION). Overall, we expect earnings to see some pressure from relatively weak mortgage banking revenue, declining NIM, and lower trading volumes. These pressures will likely be counteracted by another quarter of strong reserve releases. Longer term, we expect banks with relatively good capital positions and higher levels of C&I lending should outperform the group, since they should be able to aggressively grow their loan portfolios and return capital to shareholders."
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