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8 Best Bank Stock Buyout Targets

Financial stocks ripe for M&A.

Economic conditions for U.S. banks haven’t improved as much as investors and analysts had hoped. However, slumping share prices have created pockets of value among regional U.S. banks, and Bank of America says rumors among hedge fund managers suggest interest in merger activity has picked up. Bank of America’s merger and acquisition attractiveness model ranks all regional banks under coverage based on factors such as company management, core performance metrics and “sell” triggers,” such as poor returns or growth outlooks. Here are eight U.S. banks that could be either buyers or sellers in the current environment.

Next:New York Community Bancorp (ticker: NYCB) Credit

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New York Community Bancorp (ticker: NYCB)

New York Community Bancorp scored higher than any other bank on Bank of America’s buyout target scorecard. Analyst Ebrahim Poonawala says NYCB stock is an attractive hedge for bank investors in an uncertain economic backdrop. The bank derives roughly 90% of its revenue from spread income, which should be consistent in a steady interest rate environment. New York Community Bancorp also pays a generous 6.7% dividend, which Poonawala says is safe given the bank’s opportunity for long-term earnings growth. Bank of America has a “buy” rating and $13 price target for NYCB stock.

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Financial stocks ripe for M&A.

Economic conditions for U.S. banks haven’t improved as much as investors and analysts had hoped. However, slumping share prices have created pockets of value among regional U.S. banks, and Bank of America says rumors among hedge fund managers suggest interest in merger activity has picked up. Bank of America’s merger and acquisition attractiveness model ranks all regional banks under coverage based on factors such as company management, core performance metrics and “sell” triggers,” such as poor returns or growth outlooks. Here are eight U.S. banks that could be either buyers or sellers in the current environment.

New York Community Bancorp (ticker: NYCB)

New York Community Bancorp scored higher than any other bank on Bank of America’s buyout target scorecard. Analyst Ebrahim Poonawala says NYCB stock is an attractive hedge for bank investors in an uncertain economic backdrop. The bank derives roughly 90% of its revenue from spread income, which should be consistent in a steady interest rate environment. New York Community Bancorp also pays a generous 6.7% dividend, which Poonawala says is safe given the bank’s opportunity for long-term earnings growth. Bank of America has a “buy” rating and $13 price target for NYCB stock.

IberiaBank Corp. (IBKC)

IberiaBank is a bank and insurance holding company with 180 bank branch locations throughout the southern U.S. Poonawala says loan growth was a bright spot for the bank in the first quarter, and management’s initiatives to improve the company’s balance sheet and efficiency should improve returns over time. Bank of America is forecasting above-average long-term earnings and loan growth. IberiaBank’s ability to create shareholder value makes it both an attractive potential acquirer or a merger target for a larger bank, Poonawala says. Bank of America has a “buy” rating and $80 price target for IBKC stock.

Texas Capital Bancshares (TCBI)

Texas Capital is a regional bank that serves Texas metro areas such as Dallas, Austin and Houston. Analyst Erika Najarian projects return on equity of 13% and return on assets of 1.2% percent in 2019. Given the stock trades at a price-tangible book value of just 1.2, Najarian says it offers one of the most compelling risk-reward skews in the entire regional bank group. Book value per share and total assets have more than doubled in the past five years. Bank of America has a “buy” rating and $68 price target for TCBI stock.

Cullen/Frost Bankers (CFR)

Cullen/Frost Bankers is an independent bank holding company that holds the fifth-largest deposit market share in Texas. Poonawala says loan growth is the key to the bull thesis for Cullen/Frost. The company grew its loan portfolio by 2.2% quarter-over-quarter in the first quarter, while new loan commitments were up 12% compared to a year ago. Poonawala projects 6.8% loan growth for 2019 given strength in the Houston and Dallas markets. Bank of America has a “neutral” rating and $102 price target for CFR stock.

Signature Bank (SBNY)

Signature Bank is headquartered in Manhattan and has more than $45 billion in assets. Poonawala says management needs to prove to investors that deposit growth is accelerating and margins have bottomed over the next couple of quarters. Given shares currently trade at just 11.7 times projected 2019 earnings per share, Poonawala says there is plenty of valuation upside should the company execute its growth strategy. While it is an attractive merger play, he says Signature also has plenty of organic growth potential. Bank of America has a “buy” rating and $140 price target for SBNY stock.

First Horizon National Corp. (FHN)

First Horizon is a regional bank with $28 billion in assets that operates in Tennessee, Georgia and Mississippi. Despite its attractiveness as a potential buyout candidate, Poonawala says First Horizon’s first-quarter earnings report was disappointing and management’s cost-cutting efforts will not be enough to convince investors to buy the stock. Investment in technology and personnel will likely eat into earnings in the near term, and Poonawala says the stock’s valuation isn’t particularly attractive given First Horizon’s single-digit EPS growth outlook. Bank of America has an “underperform” rating and $15 price target for FHN stock.

BankUnited (BKU)

BankUnited is headquartered in Florida and is the eighth-largest deposit franchise in the state. Poonawala says management's recently announced BankUnited 2.0 efficiency plan is a positive for the stock, and the company’s 2020 ROA target of 1% and ROE target of 11% are achievable. Poonawala is forecasting margins to remain relatively stable at 2.54% through 2021. However, he says the bank will need to demonstrate meaningful progress toward its efficiency goals for the stock to outperform. Bank of America has a “neutral” rating and $40 price target for BKU stock.

Commerce Bancshares (CBSH)

Commerce Bancshares is headquartered in Kansas City and operates nearly 200 branches in the U.S. Midwest. Poonawala says both margins and balance sheet growth were disappointing in the first quarter. Even after a year of underperformance, Poonawala says shares are still trading at a valuation premium to Commerce’s regional bank peer group. A high quality balance sheet, a strong capital cushion and an impressive ROA profile are all positives, but Poonawala says these advantages are more than reflected in the stock’s current valuation. Bank of America has an “underperform” rating and $54 price target for CBSH stock.

Best bank stock buyout targets.

New York Community Bancorp (NYCB)IberiaBank Corp. (IBKC)Texas Capital Bancshares (TCBI)Cullen/Frost Bankers (CFR)Signature Bank (SBNY)First Horizon National Corp. (FHN)BankUnited (BKU)Commerce Bancshares (CBSH)1 of 11

Wayne Duggan, Contributor

Wayne Duggan has been a U.S. News & World Report contributor since 2016. He is an expert at ...  Read more

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