Wall Street can't generate enthusiasm for regional bank Synovus Financial (NYSE: SNV ) , so why do our Motley Fool CAPS members disagree? Some 415 members of the investor-driven community have weighed in on its prospects, and 88% of them see it outperforming the broad market averages, bestowing on it the high honor of a four-star rating. In contrast, 39% of the baker's dozen analysts rating it believe it will stumble.
So, who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
Synovus Financial snapshot
|Market Cap||$1.9 billion|
|Revenues, TTM||$1.1 billion|
|1-Yr. Stock Return||122.4%|
|Return on Investment||N/A|
|Est. 5-Yr. EPS Growth||8.5%|
|Dividend / Yield||$0.04 / 1.7%|
Source: FinViz.com. N/A = not applicable
Of course, as much as we love our CAPS community, don't buy a company just because its garnered top ratings. And don't sell it just because Wall Street says to, either. Investing requires closer diligence on your part, so use a stock's CAPS rating as a launching pad for your own research.
Flexing its muscle
Two years ago, Synovus was teetering on the brink and brought in a new CEO who cleaned house and has brought the regional bank back into fiscal shape. It once again turned a profit as net charge-offs improved sharply in the quarter, dropping 41% to under $100 million, while the annualized net charge-off ratio fell to under 2%, all significant achievements.
With its fiscal fitness, Synovus has been among the best-performing regional banks and is up more than 150% off its 52-week lows. All well and good, of course, but there's much work yet to be done.
It's a big tent
First, Synonvus hasn't repaid its $935 million TARP obligations yet four years after the program was begun. The biggest banks that got bailed out by taxpayers, including JPMorgan Chase (NYSE: JPM ) and Bank of America (NYSE: BAC ) long ago paid back the Treasury, some even turning a profit for the government. And though it's not alone in the distinction of being a debtor bank -- Puerto Rican financial giant Popular also has a similarly outsized balance outstanding -- Synovus expects repayment to be a "2013 event."
Repaying the debt would get the bank out from under the government's yoke while providing for greater financial flexibility. It would be a timely event, too. Net income last quarter came in at $24.8 million compared to a net loss of $53.5 million last year. While total revenues fell 7% to $330 million as a result of lower interest income, it still well-surpassed analyst expectations.
The improving credit situation was due to an across-the-board decline in total credit costs, non-performing loan inflows, nonperforming assets, and total delinquencies.
A capital fellow
Two measures of the bank's financial strength, its Tier 1 capital ratio and its Tier 1 common equity ratio, also increased to 13.36% and 8.81%, respectively, while Tier 1 leverage ratio improved to 10.66% from 9.70% in the year-ago quarter. That's ahead of Regions Financial (NYSE: RF ) , which report Tier 1 ratios of 11% and 10%, respectively. Another Southeastern regional bank, First Horizon National, says its capital ratios declined year over year, hurt by mortgage prepayments due to the Fed implementing artificially low interest rates.
Regions' stock has also risen 158% over the past year while First Horizon is up 80%. Considering Synovus's appreciation, it's right to ask whether they've gotten ahead of themselves. Both Synovus and Regions trade at a fraction of their book value while peer BB&T (NYSE: BBT ) trades at a 23% premium. Synovus' market multiple, though, is ahead of either bank -- but as it's returning to profitability, perhaps that's not unexpected.
I've already rated Synovus to outperform the broad market averages on CAPS, but you can tell me in the comments box below whether this turnaround is real or whether the stress tests to come and the act of paying back its TARP bill will cause it to stumble.
What's wrong with that?
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