New York Community Bancorp: Growing Earnings, Generous Yield

May.22.11 | About: New York (NYCB)
The market has been flat over the last thirty days and we are entering the dangerous summer months. Given the five percent pullback in the banking sector over the last month, as well as that sector vastly underperforming the market over the last year, it might be time to selectively and carefully start picking up some beaten up equities in that sector. One stock that intrigues me is New York Community Bancorp.

New York Community Bancorp - Overview

New York Community Bancorp, Inc. (NYB) operates as a multi-bank holding company for New York Community Bank and New York Commercial Bank, which offers banking products and services in New York, New Jersey, Ohio, Florida, and Arizona. It primarily engages in generating deposits and originating loans.

The company's deposit products include checking and savings accounts, certificates of deposit, individual retirement accounts, NOW and money market accounts, and non-interest-bearing demand deposit accounts. Its lending portfolio comprises one- to four-family loans; multi-family loans; commercial real estate loans; acquisition, development, and construction loans; commercial and industrial loans; and consumer loans. New York Community Bancorp also provides cash management, online banking, automated teller machines (ATM), and phone banking services. The company serves small and mid-size businesses, professional associations, government agencies, consumers, and school districts.

Valuation

NYB is selling for a little less than 14 times this year’s expected earnings and just over 12 times 2012’s consensus EPS. It provides a robust dividend that yields slightly over 6%. Although it has not raised its dividend since 2004, it never lowered its dividend payout during the financial crisis. It is selling at the bottom of its five year valuation based on cash flow.

Positive trends and catalysts – New York Community Bank has several positives that make it an interesting pick at these prices:

  1. Management is seeing healthy activity in loan generation, prepayments and fees. Their loan growth outlook is for mid-single digits
  2. The market rally and huge pickup in IPO and M&A activity over the last 52 weeks bodes well for its core NY market
  3. They have been proven to be a smart acquirer and its Amtrust acquisition left it in a good funding position
  4. The bank is past its peak loan losses and is gaining share in its multi-family market
  5. The stock has pulled back from over $19 at the start of the year and is now going for $16.29 a share

Recommendation and Price Target

Given the improving prospects for economic growth in its core NY market, generous dividend yield, growing earnings and the YTD pullback in its stock price, NYB looks like a buy at these levels. NYB would be more reasonably valued at 13-15 times next year’s projected earnings of $1.33 or $17 to $20 a share.

Combined with its dividend yield of 6% and low beta of .75, NYB seems like a safe pick. Credit Suisse has a price target on NYB of $19 and JPM Morgan’s target is $17.50.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NYB over the next 72 hours.