Citizens Republic Bancorp [NDQ:CRBC] Feb. 12, close: $12.80
Yield = 9.06% 52-week range: $10.41 - $24.79
Corus Bankshares [NDQ:CORS] Feb 12, close: $11.19
Yield = 8.93% 52-week range: $8.74 - $19.41
Vitually all bank stocks have been hammered in the market due to mortgage and credit-related weakness across the US economy. Many of these financial institutions will weather the storm, survive and eventually flourish. The two stocks noted above seem to have that capacity.
Both their shares have been beaten up already and expectations now appear to be reflecting very pessimistic assumptions for 2008 and beyond. Despite this, both companies are paying hefty dividends while you wait [9.06% and 8.93% for CRBC and CORS respectively].
Citizens Republic is a diversified financial services firm operating in Michigan, Wisconsin, Ohio, Iowa and Indiana. They have 241 branches and 268 ATMs. This is a small-town, conservatively run bank that appears to have avoided the bulk of the mortgage problems plaguing most banks. Actual 2007 EPS were $1.33 versus $1.67 before the credit debacle last year. The consensus of 7 analysts estimates for 2008 and 2009 are now $1.23 and $1.38 [knowing all the bad news about the housing market].
That makes the trailing P/E just 9.6X and the forward P/E 10.4X the very conservative view for the coming year's profits. Book Value is almost $21/share. While the dividend is covered by earnings, the payout ratio for 2007 was 87% so there is some risk of a cut in the future if business does not pick up. That said, management has raised the payout in 5 of the past 10 years and has never reduced it. At the current rate it is a 9.06% yield.
Guru David Dreman owned 975,000 share as of September 30, 2007.
The typical P/E for CRBC [looking backward] averaged around 15.5X so it could easily trade for 14X normalized earnings within a year or two should the housing panic settle down a bit. Using that mulitple of the current low-ball 2009 estimate would put these shares back at $19.32 within 24 months or plus 50.9% in addition to their juicy dividend. [CORS declared their normal 25 cent quarterly dividend today- payable in April].
Could this happen? Citizens Republic shares touched $26.95 - $42.25 at its highs in each calendar year from 1999 - 2007. My target price is under today's book value figure.
Do others see value here? As of September 30, 2007 these well informed investors thought so:
Barclays Global Investors held 7.55%
T. Rowe Price held 5.83%
Vanguard Group owned 2.76%
State Street Boston held 2.42%
Bank of NY - Mellon owned 2.25%
Legg Mason owned 1.71%
Dimensional Fund Advisors had 1.61%
Wells Fargo [WEB's big holding] owned 1.55%
Deutche Bank AKT. held 1.46%
DWS Dreman Small-Cap Value Fund had 1.0%
Higher than average risk? Yes.
Very nice total return potential? Absolutely.
Corus Bankshares is a holding company for Corus Bank, NA which is headquartered in Chicago, Il. They operated only 11 branch offices in the Chicgao area but had real estate related investments in many geographical areas including the hard hit Florida condo market. This hurts their future prospects as this area was a major loser when the real estate bubble burst. Actual EPS for 2007 were $1.87 but estimates for 2008 now run only $0.93 with the knowledge of the pain to come from their mortgage holdings.
Management has affirmed their view that the company is on sound financial footing on numerous occasions. Better still, they have ACTED that way. Last summer they paid an EXTRA $1/share special dividend and they have maintained their $0.25 quarterly payout reflecting their view that their overall condition is fine for the long term. Book Value was around $15 at year-end 2007.
There have been four insider buys [totaling 20,000 shares] in the past six months with no insider sales. All told, insiders hold 24.27 MM shares out of the 56 MM shares outstanding.
As noted with CRBC the dividend is NOT totally secure- it may very well be cut- but at current levels it is an 8.93% yield.
Also, like CRBC, there were many well-known and respected instituional holders as of September 30, 2007;
Franklin Resources held 5.18%
Putnam Investment Management owned 4.32%
Vanguard Group held 4.04%
E. S. Barr & Co. had 3.8%
Barclay's Global Investors owned 3.37%
Legg Mason held 3.23%
Bank of NY - Mellon had 2.23%5
State Street Corp. owned 2.09%
Dimensional Fund Advisors held 2.08%
Assuming Corus makes it through the real estate quagmire I think it could easily sell for $20 or higher based on a low normal price/book value and P/E looking out about 24 months. That would be a capital gain of over 79% plus the very good dividend yield now in place.
Is this a sure thing? Not a chance.
Could it happen? I think it will, but this one has more risk than most stocks due to its heavy real estate exposure. Their insiders seem to feel confident that things will work out well.
There you have it. CRBC is the 'chicken' way to play here while CORS is the more aggressive bet with perhaps more upside if all goes well. No guarantees on either of these working out great but I'd be pleased to report back to you after 2 years to let you know how I did with these.
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