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Bull of the Day: S&T Bancorp (STBA) - Bull of the Day

S&T Bancorp ( STBA ) delivered a big second quarter earnings beat on July 23, prompting analysts to revise their estimates significantly higher for both 2013 and 2014. This sent the stock to a Zacks Rank #1 (Strong Buy).

Along with strong earnings momentum and favorable industry tailwinds, valuation looks attractive too, and the bank pays a dividend that yields a solid 2.5%. This provides investors with strong total return potential.

S&T Bancorp, Inc. is a holding company for S&T Bank, which provides a full range of financial services to individuals and businesses primarily in Pennsylvania. It has assets of more than $4.5 billion and is headquartered in Indiana, Pennsylvania.

Second Quarter Results

S&T delivered a big second quarter earnings beat on July 23. Earnings per share jumped 57% year-over-year to 47 cents, crushing the Zacks Consensus Estimate of 36 cents.

Net interest income before the provision for loan losses rose 2% as solid loan growth more than offset a contraction in the net interest margin. The company also experienced strong operating leverage in the quarter as the efficiency ratio improved 344 basis points to 58.4%.

Credit quality improved substantially as nonaccrual loans as a percentage of total loans declined from 2.16% to 1.10%. This led management to take a significantly lower provision for loan losses in the quarter, which boosted net income substantially.

Estimates Soar

Analysts revised their estimates significantly higher for S&T following the big second quarter beat. This sent the stock to a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for 2013 is now $1.66, up from $1.45 before the earnings beat. The 2014 consensus is currently $1.67, up from $1.50 over the same period.

Rising estimates have been seen throughout the small cap banking industry. In fact, the 'Banks - Northeast' industry ranks in the top 20% of all industries that Zacks ranks.

One reason for this strong earnings momentum is a steepening yield curve. Talks of the Federal Reserve tapering quantitative easing later this year has sent longer-term interest rates higher (which has driven loan rates higher) while shorter-term interest rates remain near record lows (which has kept the interest banks pay on deposits low).

Reasonable Valuation

The valuation picture looks reasonable for S&T. Shares trade at just 1.9x tangible book value, well below its 10-year median of 2.7x and the industry median of 2.2x.

The company also pays a dividend that yields a solid 2.5%.

The Bottom Line

With strong earnings momentum, favorable industry tailwinds, reasonable valuation and a solid dividend yield, S&T offers investors attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service .

S&T BANCORP INC (STBA): 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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