Bank on Union Planters

01/23/2004 12:00 am EST


Doug Hughes


"While many of the great values in the banking sector are in very thinly traded stocks, for the first time in several months, we found a large, liquid stock that should be bought--Union Planters," says Doug Hughes, a leading specialist in the bank-stock sector. Here's his review.

"Union Planters (UPC NYSE) is the largest bank holding company in Tennessee, and among the 30 largest bank holding companies based in the US, with over $32.2 billion in assets. They have over 945 ATMs and operate 732 banking offices in Texas, Tennessee, Missouri, Mississippi, Louisiana, Kentucky, Iowa, Indiana, Florida, Arkansas, and Alabama. The bank recently announced that earnings will be a little short this quarter due to slower mortgage refinancing activity and hence, the stock has sold off over 10% because of this. This is what creates opportunity.

"Did people forget that they have over a 10% stock buyback in place? In our opinion, once the blackout period is over, on or about 1/20/04, this should lift the stock 5%+ alone. They should earn $2.80+ a share in 2005, so trading at a P/E of 11 in this high priced market is flat out cheap. They have a $17 book value and a franchise that cannot be replaced for anything close to the value that this franchise is currently trading at.

"The stock should be worth at least $40 a share (maybe $45) in a deal for a 33%-50% return within one-two years. If no deal comes, enjoy the 4.5% cash dividend and equal stock appreciation over the next 10 years. Not bad, a total 9% return every year we feel, with only 5%-7% downside risk, that has take-over potential at any time.  There are few, if any, liquid banks, trading at this kind of value in today‚Äôs market. Accumulate aggressively under $30.25 and buy all you can under $28.50 "

Editor's Note: Following the release of this report, Regions Financial and Union Planters agreed to merge in a $5.9 billion deal.

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