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Morgan Stanley downgrades People's United; BMO lowers Fifth Third


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Morgan Stanley downgrades People's United; BMO lowers Fifth Third


Morgan Stanley analyst Ken Zerbe downgraded Bridgeport,Conn.-based People's UnitedFinancial Inc. to "underweight" from"equal-weight," while maintaining a price target of $14.50.

He also lowered his 2016, 2017 and 2018 EPS estimates to 91cents, 99 cents and $1.13, from 93 cents, $1.01 and $1.16, respectively.

The analyst thinks that the company is trading at asignificant valuation premium and believes that the company's below-peerprofitability and weaker loan and earnings growth will decrease its ratingsover the next 12 months. Zerbe favors banks that can outgrow peers, such asSVB Financial Group,Signature Bank,BankUnited Inc. andFirst Republic Bank,or banks that are currently trading at "steep discounts despite improvingfundamentals," like CitizensFinancial Group Inc., Fifth Third Bancorp and

In his view, People's United's current valuation is nolonger supported by the company's fundamentals, as it is currently trading atone of the highest multiples in the analyst's midcap bank coverage universe, at16.2x 2017 estimated EPS versus 11.8x for peers, despite its below-peerprofitability and weaker loan and earnings growth.

BMO Capital Markets Corp. analyst Lana Chan lowered her recommendationfor Fifth Third Bancorp to "market perform" from"outperform," as well as her price target to $19 from $20.She decreased her 2016 EPS estimate to $1.53 from $1.55 and 2017 EPS estimateto $1.70 from $1.80.

Chan noted that the company's weakness in commercial andindustrial lending, capital markets revenue and rising credit costs, arecausing concerns regarding potential earnings headwinds. She also highlightednear-term expense pressure as a cause for concern, as the company is currentlyin an investment mode for regulatory/compliance and technology spending.

In industrycommentary, she believes that investors are not positive about the bankingsector going into first-quarter earnings season, and highlighted their uneaseregarding possible downward estimate revisions. She noted that year-to-datestocks volatility, capital markets businesses, energy prices and interest rateshave led the investors to lose conviction on banks. In her view, this hasresulted in lower valuations for the regional bank group, which is currentlytrading at below historical price-to-earnings multiples, on both absolute andrelative bases.

She highlighted BB&T Corp. as her top pick among the regional banks.She views the Winston-Salem, N.C.-based company as a higher-quality regionalbank, as it has grown organically through sound acquisitions, both in thebanking and insurance sectors. She believes that BB&T has less credit riskgiven little energy and leveraged loan exposure. However, Chan noted thatoverall, small- and mid-cap banks are preferred over the regionals, as regionalbanks pose more earnings risk, and the small and mid-caps can still benefitfrom market share gains, while the largest banks continue to downsize. The analystfavors BankUnited Inc., CathayGeneral Bancorp and Signature Bank in the small- and mid-cap space.

She also revised the 2016 EPS estimates for the regional andsmall- and mid-cap banks groups. The updated estimates for 2016 do not show anygrowth for the regionals compared to 2015, while implying a 6% median growthfor small- and mid-cap banks.

Laurie Hunsicker, a Compass Point Research & Trading LLCanalyst, downgraded Westfield, Mass.-based Westfield Financial Inc. to "neutral" from"buy," following its announcement to acquire Chicopee, Mass.-based

The analyst also lowered her price target to $7.50 from$8.00, along with her 2016 and 2017 EPS estimates to 42 cents and 48 cents,from 44 cents and 58 cents, respectively. (This was at least the second timeshe revised her numbers within the same day.)

The analyst was not surprised that Chicopee Bancorp wassold; however, she did not expect Westfield Financial to be the buyer. In herviews, the company has a discounted currency, 110% price to tangible book,compared to the deal value which is 119.7% of tangible book. She expectedPittsfield, Mass.-based BerkshireHills Bancorp Inc. or United Financial Bancorp Inc., among others, with muchstronger price currencies than Westfield Financial, to show interest in thedeal and bid higher than Westfield Financial.


Matt O-Connor, a Deutsche Bank Securities Inc. analyst,reinstated coverage of BB&T Corp. with a "hold" rating and a $39price target.

The analyst lowered his estimates for the company to reflectlower-than-previously-expected interest rates and loan growth. His 2016 EPSestimate is now $2.89, while the 2017 EPS estimate is $3.18 — compared $3.20and $3.48 before.

BB&T closed its acquisition of Swett & CrawfordGroup Inc. on April1, and also completed its deal for thesame day. The analystnoted that the company expects to add approximately $200 million of insurancerevenues annually with the Swett & Crawford deal, while it expects theNational Penn deal to be accretive in the first year excluding merger-relatedcharges.

He thinks that the company might record lower-than-expectedresults because of merger-related integration risk, net interest income or NIMpressure from lower-for-longer rates, continued competition in commercial andindustrial or commercial real estate loans and general economic weakness.However, there might also be an uncertain possibility of gain resulting fromlarger-than-expected cost saves and revenue synergies from acquisitions, and astronger-than-anticipated economy.