M&T Bank (MTB) Could See Some Downside from Large Stake Sale, Valuation - Barron's (AIB)
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M&T Bank Corp. (NYSE: MTB) has averted much of the turmoil that has burdened its larger brethren over the past two years, seeing a loss of just 5% compared to losses of 33% or more for larger banks. This should make it a compelling investment, particularly since Poobah Buffett holds a 6% stake in it, but Barron's thinks that there are some better options out there for investors.
Barron's notes that they wrote favorably about the bank back in September 2009, and the bank's stock has seen a 40% gain ever since then. The September story touted the bank's conservative management and a discount to historical valuation.
However, because of the gains in the stock, the valuation discount has been all but erased. The current forward P/E is 20x, compared to 14x last September. Barron's believes that that is a little pricey for a company whose profits are expected to only grow by about 17% this year. The figures are a high in terms of valuation amongst its peers, and a low for EPS growth among the same group.
An analysts at Credit Suisse notes that the stock is trading for about 3x tangible book value, making it look expensive. Morningstar thinks the bank is valued at $77 per share, meaning that its current price of $84 indicates that it's fully valued in the market.
One caveat is that there may be a pending sale from their largest shareholder, Allied Irish Banks (NYSE: AIB), who have a 23% stake in the company. AIB last month said that it will sell its stake in the bank, after pressures from the Irish banking system mounted.
Barron's sees many avenues that AIB could take to dispose of their stake. Though the change of hands wouldn't change the structure of the company, there may be some downward pressure on the already richly-valued shares.
The disposition of the 28 million shares in the market may be dilutive to the price, at least in the short term. An alternative would be that MTB would raise the capital to purchase the shares for treasury, which would also be dilutive to the company and for shareholders.
MTB is also one of several large banks that are still on the hook to the government to repay TARP fund that it received. Upon the purchase of its own stock, it may be tempted to sell more stock on the open market to pay its obligation.
Barron's and analysts say that a scenario that is likely not to happen would be Warren Buffett stepping in to save the bank. The current valuation doesn't fit his investment strategy.
Not all analysts believe that a sale by AIB would be a mortal blow to the bank, however, with valuation the way it is and an imminent sale of stock, many analysts are shying away from the bank right now...at least in the short-term.
Barron's notes that they wrote favorably about the bank back in September 2009, and the bank's stock has seen a 40% gain ever since then. The September story touted the bank's conservative management and a discount to historical valuation.
However, because of the gains in the stock, the valuation discount has been all but erased. The current forward P/E is 20x, compared to 14x last September. Barron's believes that that is a little pricey for a company whose profits are expected to only grow by about 17% this year. The figures are a high in terms of valuation amongst its peers, and a low for EPS growth among the same group.
An analysts at Credit Suisse notes that the stock is trading for about 3x tangible book value, making it look expensive. Morningstar thinks the bank is valued at $77 per share, meaning that its current price of $84 indicates that it's fully valued in the market.
One caveat is that there may be a pending sale from their largest shareholder, Allied Irish Banks (NYSE: AIB), who have a 23% stake in the company. AIB last month said that it will sell its stake in the bank, after pressures from the Irish banking system mounted.
Barron's sees many avenues that AIB could take to dispose of their stake. Though the change of hands wouldn't change the structure of the company, there may be some downward pressure on the already richly-valued shares.
The disposition of the 28 million shares in the market may be dilutive to the price, at least in the short term. An alternative would be that MTB would raise the capital to purchase the shares for treasury, which would also be dilutive to the company and for shareholders.
MTB is also one of several large banks that are still on the hook to the government to repay TARP fund that it received. Upon the purchase of its own stock, it may be tempted to sell more stock on the open market to pay its obligation.
Barron's and analysts say that a scenario that is likely not to happen would be Warren Buffett stepping in to save the bank. The current valuation doesn't fit his investment strategy.
Not all analysts believe that a sale by AIB would be a mortal blow to the bank, however, with valuation the way it is and an imminent sale of stock, many analysts are shying away from the bank right now...at least in the short-term.
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