The start of February saw a bit of a deja vu for regional bank stocks, with New York Community Bank (NYSE:NYCB) shares crashing. Capital One (NYSE:COF) also announced plans to merge with Discover Financials (NYSE:DFS), underscoring the continued industry consolidation. However, periods of volatility often create opportunities. Following the acquisition, speculation of further deals involving other players could offer a chance to enter certain regional bank stocks in anticipation as they are at bargain prices.
Of note is the possibility of a continued consolidation in the sector. Fed Chair Jerome Powell recently pointed to that expectation after the 2023 banking crisis. However, there is a key question for investors looking to jump into regional bank stocks. Which regional banks could be subject to a potential takeover bid or merger in the current environment? Although this isn’t easy to predict, we have instead identified three bargain regional bank stocks primed for potential gains as speculation of further deals increases.
As with NYCB’s sharp fall, which saw short-sellers target the stock, other regional banks perceived as vulnerable may face similar pressure in the short term. This is more likely as central bank backstop programs introduced to support regional banks during the crisis period come to a scheduled end in March. It may bring regional bank stocks at bargain prices, ready to grab before it’s too late.
M&T Bank (MTB)
M&T Bank (NYSE:MTB) is one of the regional bank stocks to dive in. It is concentrated in the Northeast and Mid-Atlantic regions, which includes major business hubs such as New York, Philadelphia, and Boston. The bank has $203B in assets, placing it below the threshold to be considered an important financial institution systemically. Interestingly, 75% of the bank’s revenue comes from net interest income, relying less on commercial real estate.
MTB has been focusing on driving organic growth through acquisitions of deposit franchises. This could help the regional bank maintain growth in an environment of high interest rates. The regional bank stock got a special mention from Jim Cramer recently. He pointed out that the company avoided the bond portfolio mistakes that have plagued other regional bank stocks.
The regional bank stock trades at a price-to-earnings (P/E) ratio of 8.6x. This is below the 10.9x average for the U.S. banking sector. It also offers an attractive 3.8% dividend yield.
United Bankshares (UBOH)
The second regional bank stock is United Bankshares (NASDAQ:UBOH), which operates across the Mid-Atlantic region. It has expanded considerably over the last 40 years through strategic acquisitions of other financial institutions. This strategy has allowed the regional bank to increase dividend payouts to shareholders consistently. Interestingly, it has never cut its dividend payments since its inception.
However, the regional bank stock has pulled back recently after missing analyst estimates. The earnings miss was primarily driven by special expenses relating to the Federal Deposit Insurance Corporation (FDIC), although net interest income still managed a modest growth of 1%.
While the regional bank stock trades at a P/E ratio in the high double digits at 12.7x, it offers an attractive dividend yield of 4.3%.
Bank OZK (OZK)
Bank OZK (NYSE:OZK) is one of the cheapest regional bank stocks on the list in P/E terms. It currently trades at 7.4x while also offering a competitive dividend yield of 3.6%. Bank OZK focuses on the Southeast region of the U.S. and is the largest bank in its home state of Arkansas.
In its most recent quarterly results, the bank beat earnings expectations for Q4, growing its bottom line by 12%. This came despite facing the same FDIC charges that weighed on the earnings of other regional bank stocks. The company has expanded its operations through acquisitions in the Southeast region, which has enabled it to exceed analysts’ forecasts for 14 out of the past 15 reporting periods.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
