People's United: The Market's Best Bank?

06/12/2019 5:00 am EST


Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

People’s United Financial (PBCT) saw its shares trend lower over the past month. We’re unfazed. We still view People’s United as the best bank in the country, asserts growth and income expert Ian Wyatt, editor of High Yield Wealth.

Its higher dividend yield — at 4.6 % as we write — only increases the value proposition. People’s United is a good company. It’s a great bank. We’ll argue that it’s even the best value proposition for income investments among all banks.

We think so highly of People’s United that we rate it the only bank of “widow-and-orphan” quality: Buy the shares and hold them in perpetuity without worry, and all the while benefit from a rising dividend stream. 

The key to successful banking, as People’s United proves, is discipline. This means pricing services profitably, maintaining high underwriting standards, keeping customers happy, and controlling costs.

People’s United loan volume and net interest income (NII) have more than doubled over the past 10 years. The total loan volume grows, but the total of nonperforming loans shrinks. Nonperforming assets were halved over the past decade. Few banks operate under higher underwriting standards. 

Growth arises organically — through People’s United established bank network. It’s supplemented through timely acquisitions.

Though a conservative, risk-disciplined organization, People’s United is always ready to exploit acquisition opportunities when they arise. People’s United has acquired nine financial institutions over the past 10 years. The mix includes other banks, but also other financial businesses — insurance and wealth management. 

The acquisitions have helped People’s United grow its basic banking business. They have also helped diversify the overall business.

We estimate 2019 EPS of $1.38 (a 7% increase over 2018) and $1.48 in 2020. Earnings growth will be driven by NII growth, nontraditional fee growth, and cost savings derived from acquisition synergies. 

People’s United trades at 13.6 times trails 12-month earnings. People’s United historically has traded at 18 times trailing 12-month earnings. We see no reason People’s United should be trading at a discount to the historical norm. Suggested Action: Buy People’s United Financial shares up to $19.

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