Banco Santander SA (SAN, Financial) is one of those stocks in the financial services sector that I would follow with attention.
Banco Santander stock is trading at $4.99 per share on the New York Stock Exchange as of Thursday. The share price was just 11 cents above the 52-week low of $4.88 and 52% off the 52-week high of $7.75 per share.
According to some technical indicators of GuruFocus, the stock seems to be cheap. For the 52 weeks through Aug. 16, Banco Santander has fallen 23%, and it is trading below its 200, 100 and 50-SMA lines. The stock has a market capitalization of nearly $83 billion.
Other ratios that may indicate a cheap stock are the price-book ratio of 0.75, below an industry median of 1.24, and a price-sales ratio of 1.44, versus an industry median of 3.41. Value investors usually consider a price-book ratio below 1 and a price-sales ratio below 1.5 to be inexpensive for banks.
What makes the stock attractive today, however, is the earnings yield of 9.1%. That value is more than double the average monthly spot rate on high quality market corporate bonds or HQMC bonds. HQMC bonds are securities that represent the corporate loans of companies that are rated triple-A, double-A or single-A rated. HQMC bonds are the best the corporate bond market can offer.
Banco Santander also appeals with its free cash flow distribution. The bank is granting a forward dividend yield of 5.60%, because it is distributing a cash quarterly dividend of 7.5 cents per common share. The forward dividend yield of Banco Santander is 315 basis points higher than the one-year yield on U.S. Treasury bill and 260 basis points higher than the 10-year yield on U.S. Treasury bond.
The bank has been paying dividends for 30 years, and the current payout ratio is 56% of net earnings.
There is only one cause for concern, and that is a low rating of profitability and growth. Concerning that, GuruFocus is appraising Banco Santander with a score of 2 out of a total of 10.
Even though the trailing 12-month revenue progressed, the last five years have recorded a 3.4% annual average decline.
The net margin, however, has grown nearly 20% over the same span, and Thursday it stood at 13-14%. The industry median is 23.34%. Retail banking is the core of Banco Santander’s operations since it usually generates more than 75% of the profit of the entire group.
The U.S. central bank will proceed with at least two hikes in interest rates, which should be beneficial to shareholders of Banco Santander. Analysts are also projecting nearly 9% growth in annual net profit per share for the next five to six fiscal years.
Financially speaking, Banco Santander is moderately strong. GuruFocus has assigned a financial strength rating of 5 out of 10.
The Spanish bank does business as Santander Group. The group has operations in the Americas, Europe and Asia. Santander Group has progressively expanded its presence through several acquisitions over the last 17 years.
Banco Santander is the largest bank in Spain and one of the biggest in the world. Santander is also a constituent of the Euro Stoxx 50 stock market index.
Banco Santander is not only engaged in the retail banking sector, but also provides its worldwide clients with commercial, investment and private banking products, as well as insurance, asset management and private equity offerings.
Banco Santander was established in 1856. It is headquartered in Madrid and is composed of approximately 190,000 employees and about 14,500 offices.
Ken Fisher is the top fund holder with 1.16% of ADRs outstanding.
During the second quarter of 2018, Murray Stahl increased his holding by 0.56% to 143,863 ADRs and Ken Fisher has increased his holding by 4.39% to 93,106,288 ADRs. Jim Simons sold out.
Disclosure: I have no positions in any security mentioned in this article.
