Are These Banking Insiders Telling You to Buy?
Oct 3rd 2012 2:26PM
Updated Oct 3rd 2012 2:34PM
Famed money manager Peter Lynch told us executives can sell their stock for any reason, but they typically buy only for one: They think the price is going to go up!
Today I'm highlighting regional banking specialist First Niagara Financial (Nasdaq: FNFG ) , which saw three of its directors buy some $45,000 worth of stock over the past week, which despite being small in and of itself, is part of a much larger trend over the past three months that's seen some $1.2 million worth of stock snapped up. These aren't option grants either, but purchases made on the open market just like you and I do.
First Niagara Financial snapshot
|Market Cap||$2.9 billion|
|Revenues (TTM)||$1.2 billion|
|1-Year Stock Return||(3.3%)|
|Return on Investment||N/A|
|Estimated 5-Year EPS Growth||11.9%|
|Dividend / Yield||$0.32 / 3.9%|
Although following the lead of insiders can be profitable, I still recommend you do further due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but just the inside track on a company you might want to check out in more detail.
A complex machine
When executives at First Niagara began their buying spree, the bank's stock had sunk to a new 52-week low of almost $7 a share. It was in the midst of digesting a large $1 billion, 195-branch acquisition from scandal-wracked HSBC (NYSE: HBC ) that brought with it $2.8 billion in loans, $2.4 billion in deposits, and $4.3 million in wealth management assets. It also agreed to sell 64 branches to KeyCorp (NYSE: KEY ) to meet antitrust objections.
All those moving parts for what had been a relatively sleepy northeast regional bank also brought with it concerns about the growing fiscal crisis here at home that caused Federal Reserve chairman Ben Bernanke to initiate his disastrous Operation Twist and quantitative easing policies, which imposed artificially low interest rates that ate away at margins. It's the environment these policies created that led analysts at Bernstein Research to downgrade regional banks like Huntington Bancshares (Nasdaq: HBAN ) , BB&T, and SunTrust.
The era of regional banks was on the wane while large money centers like Goldman Sachs and Bank of America were waxing.
Growth through acquisition
Acquiring the HSBC branches came at a cost. First Niagara post a $18.5 million loss, or $0.05 per share, in the second quarter, as it cost the bank more than $132 million in restructuring. Even when subtracting out those transitional costs, earnings of $0.17 per share came in lower than the $0.18 Wall Street was expecting.
Yet it saw record double-digit growth in commercial loans, and net interest income rose 12% to $259 million -- and with the acquisition, it was able to retain 97% of the deposit accounts. The bank did suffer lower yields on its loans and securities because of Operation Twist, and its provision for loan losses surged 64% from the first quarter.
Showing your cards
Despite the turmoil, First Niagara should be a better, more financially secure bank now with 430 branches spread across Upstate New York, Pennsylvania, Connecticut, and Massachusetts. It has about $35 billion in assets and $28 billion in deposits. At just 10 times earnings and trading at just 60% of its book value, it offers up a better risk profile than Huntington, BB&T, SunTrust, or Fifth Third Bancorp (Nasdaq: FITB ) .
Those insiders who bought shares at its nadir have enjoyed a 20% return on their investment, and the continuing support First Niagara has received from executives indicates they believe it's not done yet. I tend to agree and have marked the regional bank to outperform the broad indexes on Motley Fool CAPS. But tell me in the comments box below if you agree, or if you think First Niagara Financial is about to go over the falls in a barrel.
On the inside track
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