The numbers
I believe that M&T trades at a significant discount relative to its potential. Shares currently trade for just 12.8 times TTM earnings and pay a 2.7% dividend yield. M&T is expecting earnings of about $8.20 per share this year, and the consensus calls for this to rise to $8.85 and $9.48 in 2014 and 2015, respectively. This means that M&T Bank Corporation (NYSE:MTB) is forecast to grow its earnings at an average forward rate of about 8% annually, which certainly justifies the P/E multiple, especially considering the bank’s track record of stability and profitability.
Alternative 1: PNC, a larger regional bank
PNC Financial Services (NYSE:PNC) is a much larger regional banking option with over 2,900 branches and is roughly three times the size of M&T by market cap. PNC has operations in 19 states, with the largest in Pennsylvania (where it has a number one market share) and Ohio. PNC trades at a very similar valuation to M&T, with shares at 12.7 times TTM earnings and similar growth projected in the years ahead. I prefer PNC out of the two because of its slightly more ambitious growth strategy, but these two are very close.
Alternative 2: Wells Fargo & Co (NYSE:WFC), former regional bank
Another way to go would be to invest in a national giant like Wells Fargo & Co (NYSE:WFC) which is actually the fourth largest bank in the U.S. Over the years Wells has greatly increased its footprint, helped by several acquisitions, the most significant of which was the purchase of Wachovia in 2008. Wells Fargo appears to be the “cheapest” of the three banks discussed at just 11.6 times last year’s earnings, but this is common for a company as large as this. Generally, when investing in one of the industry leaders like Wells Fargo, investors are willing to give up some of the growth potential that would be associated with a smaller company in exchange for increased strength and stability. That seems to be the case here, but considering how fiscally sound the other two are, I’d rather invest in one of those, although Wells is my favorite of the big banks.
Summary
I think that the banking sector is generally cheap still, and the three companies listed here are some of my favorite ways to play it. I like M&T because of its historically stable and consistent performance, as well as for its ambitious growth plans. Now may be a great time to get in before the Hudson City deal closes, as I think it will add tremendous value for M&T Bank Corporation (NYSE:MTB)’s shareholders.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of PNC Financial Services and Wells Fargo.
The article Here’s A Regional Bank That’s Worth A Look originally appeared on Fool.com.
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