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Bank on Synovus

04/01/2005 12:00 am EST


Kelley Wright

Managing Editor, Investment Quality Trends

"We are contrarians and the stocks we like are almost always out of favor," notes Kelley Wright, editor of IQ Trends. "To be frank, I’d be disturbed to find that our stocks are in favor because from a contrarian perspective that would mean we are wrong." Here’s his latest.

"We buy select stocks that qualify as blue chips when they are trading at historically undervalued levels, hold them through their rising trends, and sell when they reach their historically overvalued prices. We identify these over and under valued levels through proprietary dividend yield profiles which are based on repetitive extremes seen in each stock’s long-term history. We have followed this approach without deviation since our inception in 1966.

"Synovus Financial (SNV NYSE) is best known as the parent company to its 40 banking subsidiaries. The company has earned the distinction of an A+ dividend and earnings rank from Standard and Poors. Besides its banking operations, the company also owns a 81.1% ownership stake in payment process Total Systems Services (TSYS).  In its novel approach, SNV allows each affiliated bank to maintain its own brands, management, and charter. This decentralized model is created around the theory that local branches know their customers best. Though over 60% of its financial service revenues come from Georgia, SNV also has significant operations in Alabama, South Carolina, and Florida. The firm is also one of the world’s largest electronic payment processors. Major customers include 5 of the 10 largest credit card issuing banks in the world.

"The close of the fourth quarter proved profitable for Synovus. The company announced a 16% gain on net interest income. Profit for the quarter rose to $0.38 per share from $0.34 during the same period in 2003. Overall results for 2004 showed net income at $1.41/share from $1.28/share during the previous year. In 2005 the company expects earnings to fall in the range of $1.58 per share to $1.62. Coinciding with the increases came an announcement in late February that SNV was raising its quarterly dividend by 5.3% to $0.1825 a share.

"The shares are in a ‘Rising Trend’ with a downside risk to an historical ‘Undervalue’ price of $24, where the stock would provide a high yield of 3.0%. From current levels, the shares have upside potential of over 117% to an Overvalue price of $61, where the shares would have an historically low yield of 1.2%. Based on its strong record of dividend increase, elevated yield level, and A+ quality ranking, shares of SNV offer an attractive possibility for those not already invested in the banking sector. Though it has a market capitalization of almost $9 billion, the bank’s unique operating structure allows it the flexibility of a much smaller entity. Technically, the shares are in the Undervalue category at prices of $27 and lower."

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