On Aug 20, 2013, we maintained our Neutral recommendation on
People's United Financial Inc.
), based on its healthy capital position, organic growth and
prudent expense management. Yet, the recent regulatory issues and
a challenging economic environment remain the major areas of
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People's United's second-quarter 2013 earnings came in at 20
cents per share, edging out the Zacks Consensus Estimate by a
penny. Moreover, earnings compared favorably with 18 cents per
share reported in the prior quarter.
Improved credit quality, higher top line and reduced non-interest
expenses were the tailwinds for the quarter. Total net loans
stood at $22.7 billion, up 3.2% sequentially. Moreover, total
deposits advanced slightly on a sequential basis to $22.0
billion. Non-performing assets totaled $280.5 million, down 1.6%
People's United has considered a number of expense savings
initiatives with a goal of increasing its recurring operating
income. Management expects expenses during the course of 2013 in
the range of $815 million-$820 million, almost stable compared
with the 2012 levels. Therefore, with these expense reduction
initiatives and strengthening of the balance sheet, supported by
strategic revenue initiatives, the company targets to reach an
efficiency ratio of 55% in late-2014.
However, we are concerned about the regulatory issues, which are
expected to pose as headwinds for People's United's profitability
going forward. Such regulations are likely to reduce fee income
growth prospects, increase compliance costs and subject the
company to a number of restrictions.
Following second-quarter 2013 results, over the last 30 days, the
Zacks Consensus Estimate for 2013 inched up 1.3% to 78 cents per
share, while it increased 2.2% to 91 cents for 2014. Currently,
People's United carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better performing stocks in the same sector include
Provident Financial Holdings, Inc.
Washington Federal Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).