Insiders made noteworthy buys (see definition below) in three financial sector stocks (including REITs) last week (June 4 to 8, 2012), and sold three others. These, along with insider buys and sells last week in other sectors and groups (discussed in previous articles on the basic materials sector, energy sector, healthcare sector, technology sector, and consumer and retail sectors) were selected based on a review of over 1,600 separate SEC Form 4 (insider trading) filings last week, as part of our daily and weekly coverage of insider trades.
The filings are noteworthy based on the dollar amount sold, the number of insiders buying or selling, and based on whether the overall buying or selling represents a strong pick-up based on historical buying and selling in the stock (for more info on how to interpret insider trades, please refer to our instablog discussion on insider trading):
Equity Residential (EQR): EQR, founded and led by billionaire and legendary investor Sam Zell, is the largest publicly traded multi-family/ apartment REIT, with a portfolio of high-end properties in some of the most affluent and higher growth markets in the country including New York, Boston, Washington D.C., Los Angeles, San Francisco and Seattle. Last week, four insiders filed SEC Forms 4 indicating that they sold 37,813 shares for $2.3 million. The largest seller was EVP David Santee, who exercised options and sold the resulting 25,717 shares for $1.6 million, ending with just over 27,300 shares in direct and indirect holdings after the sale (not including derivative securities). In comparison, insiders sold 0.32 million shares in the past year.
In its latest Q1 (March) that it reported about six weeks ago, the company reported in-line revenue and missed analyst earnings estimates by a penny (61c v/s 62c), and guided towards in-line FFO (funds from operations) for Q2. The stock trades at a forward price to funds from operations (P/FFO) ratio of 20.5 compared to the average of 17.2 for its peers in the REIT Equity Trust group. Also, it has a dividend yield of 2.5% compared to the 3.3% average for the group. Wall Street analysts are neutral on the company, with 19 of the 25 analysts that cover the company rating it at hold, another 5 rating it at buy/strong buy and the remaining one at underperform, with a mean price target of $63, almost at par with Friday's closing price of $61.90.
P/FFO is a more appropriate measure of value, commonly used in the REIT group, as it adds back in depreciation expenses that are typically taken out in calculating net income and earnings. This is because real estate, unlike fixed PP&E costs in the case of other groups, rarely loses value over the long-term, and in fact, most often appreciates over the long term. So, in this case spreading out the investment cost in PP&E (in this case, mostly real estate) charges over the long term makes little sense as is done in calculating net income; hence, depreciation is added back in and the resulting FFO is a more appropriate measure of the cash flows than are earnings.
In addition to EQR, insiders also reported noteworthy sales this past week in the financial sector in:
- A $1.1 million sale by President & CEO of Guy Carpenter, Alexander Moczarski, at Marsh & McLennan (MMC), a provider of advice and solutions in the areas of risk, strategy, and human capital; and
- A $1.0 million sale by EVP Dawn Becker at Federal Realty Investment Trust (FRT), a REIT that owns, manages and develops retail and mixed-use properties in the Northeast, Mid-Atlantic and California.
On top of these, noteworthy insider buys last week in the financial sector included:
- Bank of America (BAC), that is a global financial services company providing banking and financial services to individuals, small- and middle-market businesses, corporations and governments primarily in the U.S., and also internationally in over 40 foreign countries, in which Director Donald Powell purchased 7,445 shares for $53,976, increasing his holdings to just under 0.12 million shares;
- Fifth Third Bancorp (FITB), a diversified financial services' holding company, engaged in commercial, retail and trust banking, data processing services, investment advisory services and leasing activities via 1,312 centers in 12 states, in which Director Michael McCallister purchased 5,000 shares for $61,295, increasing his holdings to 10,271 shares in direct and indirect shares, and in comparison to 32,000 shares purchased by insiders in the past two years; and
- Schwab Charles Corp. (SCHW), that provides brokerage, banking and financial services to individual and institutional clients, in which EVP James McCool purchased 27,316 shares for $0.34 million, increasing his holdings to just under 0.12 million shares in direct and indirect holdings, and in comparison to 34,185 shares purchased by insiders in the past two years.
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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