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People's United (PBCT) On Expansion Spree: Should You Hold?

Published 08/29/2016, 09:57 PM
Updated 07/09/2023, 06:31 AM

On Aug 29, 2016, we issued an updated research report on People's United Financial Inc. (NASDAQ:PBCT) . Notably, shares of this Bridgeport, CT-based bank have gained more than 5% over the past six months. We believe this growth story comes on the back of the company’s strength in several areas along with recent expansion moves.

In line with its strategy to boost fee income businesses, last month the company entered into an agreement to acquire Gerstein Fisher, a $3 billion investment management firm. Further, in Jun 2016, it inked a $402 million all-stock deal to acquire Riverhead-based Suffolk Bancorp, which is set to fortify its footprint in the New York Metro region. Both the transactions are expected to close in fourth-quarter 2016 and are anticipated to be accretive to earnings.

Further, driven by a strong capital position, the company remains committed to enhance shareholders’ value. In Apr 2016, it raised its quarterly dividend to 17 cents per share, marking the 23rd consecutive annual dividend hike. Notably, in the latest earnings conference call, management highlighted that the company will not cross the $50 billion assets threshold without regulatory support for dividend and that it will continue to work to bring down its dividend payout ratio through an improvement in earnings.

Additionally, over the past few years, People's United has been witnessing rising loans and deposits. The growth momentum should continue, driven by persistent economic recovery. Management expects loan growth of 4–6% and deposit growth of 4–6% in 2016.

Nevertheless, we remain cautious owing to several issues faced by People's United that pose a threat to the company’s financials. Management lowered net interest income growth projection as well as margin guidance for 2016, due to several factors including assumption of no Fed interest rate increases this year and a continuation of a flat-yield curve environment.

Further, escalating non-interest expenses remain a major concern. Though the company remains focused on optimizing its branch network and has initiated technology installation to improve efficiencies and reduce costs, we believe elevated expense levels are likely to limit bottom-line expansion. Among other headwinds, regulatory issues are expected to limit profitability.

Over the past 30 days, the Zacks Consensus Estimate remained unchanged at 89 cents per share and 93 cents for 2016 and 2017, respectively.

Stocks to Consider

Some top-ranked stocks in the finance space include Enterprise Financial Services Corp. (NASDAQ:EFSC) , Credit Acceptance Corp. (NASDAQ:CACC) and Meta Financial Group, Inc. (NASDAQ:CASH) , each sporting a Zacks Rank #1 (Strong Buy).

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ENTERPRISE FINL (EFSC): Free Stock Analysis Report

CREDIT ACCEPT (CACC): Free Stock Analysis Report

PEOPLES UTD FIN (PBCT): Free Stock Analysis Report

META FINL GRP (CASH): Free Stock Analysis Report

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