Bear of the Day: Flagstar Bancorp (FBC)

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The finance industry has been soaring in the past few months as rates look likely to rise in the near term. And with recent Fed members suggesting there could be three-or more-hikes this year, the profits could really roll in for the finance sector in 2017.

No wonder the sector has the pole position in the Zacks Sector Rank, and why it has stayed in a lofty position for much of the start of this new year.

You'd think that with this kind of environment, pretty much any bank stock would be a great investment. However, that isn't the case, as several actually have 'strong sell' ranks and should probably be avoided by investors at this time. One such example is Flagstar Bancorp (FBC) which not only has a Zacks Rank #5 (Strong Sell) but a fundamental score of 'F' as well.

Why FBC has such a poor rank

Though Flagstar has soared in recent weeks, the company actually just missed earnings estimates, its first such miss in quite some time. FBC missed estimates by close to 11% and revenues were lackluster as well.

Shares have surged in recent weeks, but analysts are still skeptical on the company's potential, at least if we look to how recent estimates have trended. In fact, the company is now projected to post an earnings decline of roughly 32% for the current quarter (year-over-year), and a roughly 6.6% decline for full year when compared to the year ago period.

This is thanks to analysts in our consensus slashing estimates across the board for the company, suggesting they are no longer believers in FBC's near term growth story. The current quarter estimate has actually cratered by over 22% in the past two months, while the full year estimate has fallen by over 10%.

Flagstar Bancorp, Inc. 12 Month EPS

Flagstar Bancorp, Inc. 12 Month EPS | Flagstar Bancorp, Inc. Quote

With these kinds of figures it shouldn't be surprising to note that FBC has fallen into 'Strong Sell' territory, but there are fundamental issues as well with the company. It has a high debt/equity ratio when compared to its industry, while it actually has a negative price/cash flow ratio, giving the company an 'F' grade for value. Meanwhile, negative earnings growth and negative projected sales growth ensure that this bank also receives an 'F' grade for growth too.

Other Choices

Fortunately for investors seeking a top banking pick, there are tons of better ranked options out there in the savings and loan industry. One that stands out in particular is HopFed Bancorp (HFBC), which is a Kentucky-based lender.

This company has a better fundamental score than FBC, while it also has a Zacks Rank #1 (Strong Buy) too. So, if you are looking to benefit from the great environment in the savings and loan market these days, take a closer look at HFBC instead of FBC, at least until Flagstar can turn things around in terms of growth and earnings estimates.

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HopFed Bancorp, Inc. (HFBC): Free Stock Analysis Report

Flagstar Bancorp, Inc. (FBC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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