Earnings Season: Cardinal Financial Might Surprise Again

Jul.15.12 | About: Cardinal Financial (CFNL)

Earnings season for the second quarter started just this week, so we ran a screen to find promising companies that are soon reporting their results. This led me to Cardinal Financial Corp. (CFNL), a regional bank in the DC area. It has surprised analysts for the last four quarters, and with its 2Q announcement next week, it may have more value to price in.

Cardinal Financial is a regional bank from the Virginia and DC area that offers personal banking, business banking, wealth management, and mortgage services. The bank has 27 locations and focuses strongly on personal service according to the company website. The company's market cap is at $365.83M, and the most recent closing price for CFNL is at $12.52.

As mentioned above, the company has positively surprised analysts for the last four earnings reports. In June 2011: Reported EPS at 0.2 vs. estimate at 0.18 (surprise of 11.1%). In Sep 2011: Reported EPS at 0.29 vs. estimate at 0.2 (surprise of 45%). In Dec 2011: Reported EPS at 0.28 vs. estimate at 0.27 (surprise of 3.7%). In Mar 2012: Reported 0.26 vs. estimate at 0.24 (surprise of 8.3%). [Average earnings surprise at 17.03%]. Cardinal Financial's second quarter earnings are due to be released on July 16.

Will this be an opportunity to price in more value? Perhaps. According to the Graham Number, the stock is trading well below its maximum fair value. Diluted TTM earnings per share at 1.02, and a MRQ book value per share valued at 9.1, implies a Graham Number fair value = sqrt(22.5*1.02*9.1) = $14.45. Based on the stock's price at $12.52, this implies a potential upside of 15.43% from current levels.

PEG is also low at 0.68. Although TTM P/E is at 12.16 vs. 9.93 for the industry average, and TTM P/S at 2.5 vs. 1.98 for the industry average.

CFNL certainly does not suffer from a lack of positive market sentiment. CFNL stock is rallying above its 20-day, 50-day, and 200-day moving averages. The stock is also trading within 1% of its 52-week high.

This may be due to Cardinal's superior profitability in the commercial bank industry. TTM gross margin is at 78.52% vs. industry average at 72.86%. TTM operating margin is at 50.52% vs. industry average at 39.95%. TTM pretax margin is at 31.45% vs. industry average at 23.91%.

The company's earnings forecast is also strong: 5-year projected EPS growth is at 18%. Over the last 5 years, earnings have grown almost 26% and sales have risen 5%. These earnings are being used to support a handsome dividend. The stock pays a dividend yield of 1.28% with a sustainable payout ratio of 11.45%.

Overall, Cardinal Financial may surprise analysts again next week and rally higher as its profitability continues to beat its industry peers. The stock has an awful lot of momentum to support this move higher.

For a closer look at CFNL stock, try Kapitall tools!

For an interactive version of this chart, click on the image below. Analyst rating data sourced from Zacks Investment Research.

Tool provided by Kapitall (kapitall.com).

*Written by Alexander Crawford. Price multiple data sourced from Fidelity, EPS data sourced from Yahoo! Finance, accounting data sourced from Google Finance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.