Large Cash Position and No Subprime Exposure Has People's United Shares Looking Cheap -Barron's
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This weekend's edition of Barron's highlighted reasons why investors should like shares of People's United Financial (Nasdaq: PBCT), New England's largest regional bank.
Barron's top reason seems to stem from People's United large cash position: about $2.5 billion or 44% of its market capitalization of $5.7 billion. Through Q2 of this year, People's percentage of Tier One capital was 16.5% of its total assets, about 2.75 times what the FDIC considers well-capitalized.
Although the market has certainly noticed People's large amount of liquid assets (stock is only down 6%, compared to a 34% decline in the S&P 500 Regional Banks index), the stock still seems relatively cheap. The stock trades at 29x FY08 expected EPS of $0.57, versus its peer group average of 30x, and at just 1.07x book value, or 1.5x tangible book value of $11 per share. Barron's believes that a valuation closer to 1.5x book value, or about $22, would better reflect the banks current value.
The article points out that "Because so much of its money is in cash, People's earnings are dramatically understated." If the bank uses its cash to fund an acquisition, as Barron's expects it will, People's CEO, Philip Sherringham, believes "earnings could potentially double over the next two to three years."
According to the CEO, "We have no exposure to subprime or Alt-A, we have a huge amount of capital, and frankly, there is nothing the credit cycle can throw at us that we can't absorb. We're in a great position to be a consolidator in the ongoing consolidation of the banking environment."
People's United Financial, Inc. operates as the savings and loan holding company of People's United Bank that provides various financial services to individual, corporate, and municipal customers in the United States.
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