Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 12.3% over the past six months. At the same time, the S&P 500 was up 7.7%.
Nevertheless, investors should tread carefully as many banks are cyclical due to their exposure to credit risk and regulatory changes. Keeping that in mind, here is one resilient bank stock at the top of our wish list and two that may face trouble.
Two Bank Stocks to Sell:
Lake City Bank (LKFN)
Market Cap: $1.56 billion
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ: LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Does LKFN Worry Us?
- Muted 5.1% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Muted 6% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Incremental sales over the last five years were less profitable as its 3.9% annual earnings per share growth lagged its revenue gains
Lake City Bank’s stock price of $62.54 implies a valuation ratio of 1.9x forward P/B. Read our free research report to see why you should think twice about including LKFN in your portfolio.
Commerce Bancshares (CBSH)
Market Cap: $7.73 billion
Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.
Why Are We Wary of CBSH?
- Sales trends were unexciting over the last five years as its 6% annual growth was below the typical banking company
- Muted 6.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Estimated tangible book value per share growth of 10.9% for the next 12 months implies profitability will slow from its two-year trend
Commerce Bancshares is trading at $52.46 per share, or 1.7x forward P/B. Check out our free in-depth research report to learn more about why CBSH doesn’t pass our bar.
One Bank Stock to Watch:
First BanCorp (FBP)
Market Cap: $3.69 billion
Tracing its roots back to 1948 in San Juan, First BanCorp (NYSE: FBP) is a bank holding company that provides commercial banking, consumer financing, mortgage services, and insurance products across Puerto Rico, the U.S. mainland, and the Caribbean.
Why Could FBP Be a Winner?
- Non-interest operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 23.6% exceeded its revenue gains over the last five years
At $23.99 per share, First BanCorp trades at 1.8x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free.
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