On Aug 11, 2014, we issued an updated research report on People's United Financial Inc. (PBCT). Given the competitive environment in the industry, regulatory restrictions and higher capital requirement, expense management has become a priority in the financial sector. This Connecticut-based savings and loan institution has been undertaking cost control measures to achieve operational efficiency and drive higher operating income.
In second-quarter 2014, People’s United saved $30 million from its expense reduction initiatives. For the remaining quarters of 2014, management expects expenses to trend in the current range of $205–$208 million. However with an extra day count in the later part of the year, the figure will reflect a sight increase.
With the expense reduction initiatives and strengthening of the balance sheet aided by strategic revenue initiatives, the company aims to reach efficiency ratio in the low 60s in 2014. We expect such measures to help improve the company’s bottom line in the upcoming quarters.
Further, second-quarter 2014 marked the15th consecutive quarter of loan growth. Loans increased 11.4% year over year in first-half 2014. Also average deposits rose 7.7% year over year in first-half 2014.
We remain optimistic about the efforts taken by People’s United. However, concern arises owing to several issues including declining net interest margin, sluggish economic recovery that limits growth prospects and the prevailing stringent regulatory landscape.
Analysts’ mixed stance on the stock was reflected in the movement of the Zacks Consensus Estimate over the past 30 days. For 2014, the Zacks Consensus Estimate advanced 2.4% to 84 cents per share while it fell 1% to 92 cents for 2015.
People’s United currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Great Southern Bancorp Inc. (GSBC), Mutualfirst Financial Inc. (MFSF) and Select Bancorp, Inc. (SLCT) are among the better-ranked stocks in this space. All these stocks sport a Zacks Rank #1 (Strong Buy).
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