The financial services sector has yet to recover fully following the coronavirus-driven plunge in March. Most stocks in this sector, especially regional banks, still trade at discounted valuation multiples, which make them an interesting choice for bargain hunters.
Some of the companies have recently reported earnings for the third quarter, which beat analysts' expectations on earnings. This could be a signal that the market might be overblowing the negative impact of Covid-19 on the banking industry.
First Horizon National
First Horizon National Corp. (FHN, Financial) is down more than 30% this year, primarily due to the February through March plunge. The company announced its third-quarter earnings results on Friday morning, which beat expectations for earnings and revenue.
First Horizon posted earnings of 35 cents per share, more than doubled expectations of 17 cents. However, this was still a significant decline from last year's earnings of 43 cents. Shares of the company edged 3% lower following the announcement, thereby valuing the stock at a price-earnings ratio of 11.97.
First Horizon is now trading below the Peter Lynch earnings line, which indicates a potential undervaluation. Its forward dividend yield of 5.54% will provide an added impetus going into the final quarter of the year.
First Hawaiian
Shares of First Hawaiian Inc. (FHB, Financial) rallied 6% following Friday's pre-market earrings release. However, the company's market value is still down more than 38% this year.
In the recently concluded quarter, First Hawaiian posted a top line of $182.9 million, down from $193 million posted in the same period last year.
The company's quarterly earnings of 50 per share also slightly declined from 57 cents posted a year ago. However, this was significantly higher than the consensus analyst estimate of 31 cents. First Hawaiian's price-earnings ratio of 11.61 will be attractive to investors as it prices the stock below the Peter Lynch earnings line.
The company's forward dividend yield of 6.20% could also help to boost interest in its stock ahead of the fourth quarter.
Independent Bank
Shares of Rockland, Massachusetts-based Independent Bank Corp. (INDB, Financial) surged nearly 6% on Friday following the company's third-quarter earnings release. The company's stock is down nearly 30% this year, which again suggests that there could be room left to run heading into the final months of the year.
Despite Friday's spike in the share price, Independent Bank still looks attractively valued at a price-earnings ratio of 13.32. Some investors could also find the company's forward dividend yield of 3.52% compelling given its payout ratio of 40.36%.
In the most recent quarter, Independent Bank posted earnings of $1.07 per share, which represented a significant decline from $1.50 posted in the same period last year. This was still better than the consensus Street estimate of about 89 cents.
In summary, the stocks discussed here appear to have compelling valuation multiples. They all pay dividends at attractive yields, which could boost interest in the market. They could be worth adding to your portfolio.
Disclosure: No positions in the stocks mentioned.
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