In this Motley Fool series, we rank three related stocks on five criteria to determine the best buy.
Today's matchup is a battle among regional banks: Ohio-based Huntington Bancshares (Nasdaq: HBAN ) , Alabama-based Regions Financial (NYSE: RF ) , and Georgia-based Synovus (NYSE: SNV ) .
Although they serve different parts of the country, the basic business models are the same: take in money at one interest rate and lend at a higher one. So by using five short-of-scientific-but-carefully chosen criteria, let's determine which of these three banks is the best buy (assuming we have to buy one).
Round 1: Balance sheet
There's a clear winner here. All three took TARP money from the government during the bailouts, but only Huntington has paid it all back. Further, Huntington has reasonable amounts of non-performing loans and reasonable reserves. Regions has a higher non-performing loans ratio but does reserve for most of it. Synovus is the worst on both counts. Rank: (1) Huntington, (2) Regions, (3) Synovus.
Round 2: Operations
For the health of operations, we'd normally look at return on equity. However, Huntington is the only profitable one on a trailing-12-months basis. Huntington currently has a respectable 9.3% ROE. For comparison, that's in the ballpark of regional banks like KeyCorp (NYSE: KEY ) (10.4%) and Fifth Third (Nasdaq: FITB ) (8.9%). Meanhwhile, on an absolute basis, Synovus's trailing negative EPS is over half of its stock price! Rank: (1) Huntington, (2) Regions, (3) Synovus.
Round 3: Dividends
Synovus and Regions pay only a nominal penny a quarter in dividends. But their stock prices are so low that this equates to dividend yields of 3.3% and 1.1%! Huntington gives four cents a share each quarter for a 3% yield. Even though its yield is lower, we'll give the nod to Huntington since the dividend is at least above nominal levels. Sustainability should also be considered. Rank: (1) Huntington, (2) Synovus, (3) Regions.
Round 4: Price
On a price-to-tangible-book value basis, Synovus (0.49) is the cheapest, followed by Regions (0.61) and Huntington (1.07). To put these numbers in perspective, on the extremely troubled end, National Bank of Greece (NYSE: NBG ) trades for 0.32. A high-quality bank like US Bancorp (NYSE: USB ) trades for 2.34. Shares of banks in general are depressed because of uncertainty over balance sheets and future profitability. That said, on an absolute basis, all three of our contenders are trading at low multiples. Rank: (1) Synovus, (2) Regions, (3) Huntington.
Round 5: CAPS rating
Our CAPS community gives a middling three stars to Synovus and two stars to Huntington and Regions, with Huntington rating just a smidge higher than Regions. Rank: (1) Synovus, (2) Huntington, (3) Regions.
The summary rankings
|
Category
|
Huntington
|
Regions Financial
|
Synovus
|
| Balance sheet |
1 |
2 |
3 |
| Operations |
1 |
2 |
3 |
| Dividends |
1 |
3 |
2 |
| Price |
3 |
2 |
1 |
| CAPS rating |
2 |
3 |
1 |
| Average finish |
1.6 |
2.4 |
2.0 |
There you have it. Huntington's higher-quality balance sheet and operations give it the nod over Synovus' bargain-basement price, with Regions bringing up the rear. I think that besides being a relative winner here, Huntington is trading at attractive prices today. I've bought it in my public-facing real-money portfolio and in my personal account. The same goes for KeyCorp and Fifth Third, which I mentioned earlier. At today's prices, Huntington and KeyCorp look especially attractive.
For more dividend-paying stock ideas, check out our free report: "13 High-Yielding Stocks to Buy Today." In it, you'll find a non-bank that is taking advantage of these low interest rates and pumping out a huge dividend in the process.
RSS Headlines
Fool UK