According to Barron’s, the recent decline in many regional bank stocks, caused by New York Community Bancorp’s (NYSE:NYCB) multitude of problems, appears to have created a good buying opportunity for investors within the sector. Investment bank Keefe, Bruyette & Woods says that, despite NYCB’s issues, just three regional banks of roughly 4,700 experienced any major difficulties in 2023.
Meanwhile, a high number of the banks’ valuations are quite low. Also importantly, the many regional banks with relatively large amounts of their excess funds in bonds will benefit significantly when the Fed cuts interest rates. That’s because lower interest rates will lift the value of these bonds. And, in turn, meaningfully improve the banks’ balance sheets and raise their value in the eyes of many investors. Let’s take a look at three regional bank stocks ready to take off.
U.S. Bancorp (USB)
Keefe, Bruyette & Woods identifies U.S. Bancorp (NYSE:USB), one of the larger regional banks, as one of its favorite names in the sector. USB currently has a large forward dividend yield of 4.9%, and KBW expects the yield to increase going forward.
On Jan. 30, Bank of America named USB as one of its top investment ideas.
Last quarter USB’s top line climbed a significant 6% versus the same period a year earlier to $6.76 billion. Meanwhile, its interest income rose to $7.76 billion compared with $5.97 billion in Q4 of 2022. Further, the bank’s EPS came in at 99 cents, well above analysts’ average estimate of 90 cents.
Also noteworthy is that the bank has more deposits than loans, boding very well for its stability going forward.
Truist Financial (TFC)
Truist Financial (NYSE:TFC) is another major regional bank with a high dividend yield. Specifically, TFC’s forward dividend yield is now 6%.
In the five years that ended in March 2023, the bank’s annual revenue had jumped 136%, while its annual free cash flow almost doubled to over $8.5 billion.
Encouragingly, the bank predicted in January that its sales would come in at $5.7 billion to $5.8 billion, meaningfully above analysts’ average estimate of $5.68 billion. The company believes that its Q1 revenue will be little changed versus Q4.
TFC has an attractive forward price-to-earnings ratio of 9.9 times, while analysts, on average, expect its EPS to rise to $3.91 next year from $3.44 this year.
PNC Financial (PNC)
PNC Financial’s (NYSE:PNC) 2023 revenue came in at $21.49 billion, up 2% from the $21.12 billion on its top line for 2022. And the bank’s EPS, excluding certain items, rose to $14.10 from $13.85. Also noteworthy is that its average loan total rose to $323.5 billion last year from $307.7 billion in 2022.
The bank expects to reduce its expenses by $325 million this year. It has a low forward price-earnings ratio of 11.9 times and a significant dividend yield of 4.1%.
Artisan Value Fund, an institutional investor, has called PNC “well managed and well capitalized.” Additionally, a high total of 37 hedge funds owned PNC stock as of the end of last quarter.
On the date of publication, Larry Ramer 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.
