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6 Undervalued Bank Stocks to Buy Now

  • These undervalued bank stocks will keep paying their dividends and buying back stock to push their prices higher.
  • Bank of America (BAC) reported good earnings for Q2 and its tangible book value actually rose over the past quarter.
  • Huntington Bancshares (HBAN) is a cheap regional bank at 9x earnings for 2022 and 8.4x for 2023 with a 5% dividend yield.
  • Regions Financial Corporation (RF) is forecast to show 8% earnings growth next year, recession or not.
  • Citizens Financial Group (CFG) is a regional financial group that is also forecast to make a good deal of money.
  • KeyCorp (KEY) is very cheap at 8.2x earnings for 2022 and 7.4x for 2023.
  • Fifth Third Bank (FITB) is a diversified financial services company with good earnings growth.
Undervalued Bank Stocks - 6 Undervalued Bank Stocks to Buy Now

Source: Feylite / Shutterstock

I am writing today about six undervalued bank stocks to buy now. These banks are high quality as they will keep paying their dividends and buying back stock. Those two measures will help push their prices higher.

Moreover, their valuations are very inexpensive with low price-to-earnings (P/E) multiples, and low price-to-tangible book value per share (P/TBVPS) ratios. The average of this group is 8.8x and the average yield is 3.89%, as the table on the right shows.

7-18-22 - Undervalued Bank Stocks - InvestorPlace
Source: Mark R. Hake, CFA

However, due to bank’s inherent leverage, even if just 3% of the loan assets stop making payments and the bank has to begin the process of writing them off, it reduces equity by 30%. That is, the book value will drop precipitously.

The market will react violently to this and the bank will have trouble raising capital to replace that reduction. Then the regulators come in and screw the nuts even tighter.

This is why banks keep reserves and also start taking provisions. Moreover, smaller regional banks tend to be under less pressure than other larger money center banks. Most of the stocks on this list are regional banks.

Let’s dive in and look at these stocks.

Ticker Company Recent Price
BAC Bank of America $32.26
HBAN Huntington Bancshares $12.58
RF Regions Financial Corporation $19.46
CFG Citizens Financial Group $37.17
KEY KeyCorp $17.70
FITB Fifth Third Bank $33.77

Bank of America (BAC)

Bank of America (NYSE:BAC) recently announced its earnings for Q2. The money center bank made 73 cents per share, which was a miss of just 1 cent per share, not as much as some feared it would be.

More importantly, Bank of America bought back $1 billion of its shares during the quarter, which shows that its share repurchase program is still on track. In fact, the company said during the earnings call that it still has more buybacks it can do.

As a result, that will allow the bank to increase its dividends per share over time as the amount of cash flow increases. The company now has a dividend yield of 2.60%.

Moreover, the company reported that its tangible book value per share (TBVPS) increased 2.95% from $20.99 at the end of Q1 to $21.61 at the end of Q2 2022.

This puts the stock on a forward P/E multiple of 10x for 2022 and 8.6x for 2023. This is even after analysts have adjusted their earnings outlook for the money center bank.

In addition, TipRanks reports that the average price target of 16 analysts is $42.70, or 32.3% above today’s price.

Huntington Bancshares (HBAN)

Huntington Bancshares (NASDAQ:HBAN) is a regional bank based in Columbus, OH, and is very cheap with good earnings prospects.

For example, analysts now forecast that earnings will rise from $1.39 to $1.49 per share. So, at $12.58 per share, this puts HBAN stock on an inexpensive forward P/E multiple of 9x for 2022 and 8.44x for 2023x.

Moreover, the company pays 15.5 cents quarterly, which equals 62 cents annually, and gives the stock a healthy 4.96% dividend yield. The dividend is well covered by earnings as the payout ratio is just 44.6%. So even if a recession has an effect on its growth rate, which, so far analysts are not forecasting, the company should be able to afford the dividend.

Moreover, its TBVPS is $7.60 as of March 31, which puts the stock on a reasonable P/TBVPS ratio of 1.66x. This shows that Wall Street has a lot of confidence in its earnings. In fact, TipRanks reports that the average price target is $14.90, or 18.4% over today’s price.

Regions Financial Corp (RF)

Regions Financial Corporation (NYSE:RF) is an Alabama regional corporate and consumer bank that is very profitable and also very inexpensive. For example, analysts now project that Regions will make $2.25 per share this year and 8% more at $2.43 in 2023. In other words, they do not foresee a major impact from a recession.

This puts the stock on a P/E multiple of 8.6x for 2022 and 8.0x for 2023. That is even cheaper than multiples for HBAN stock discussed above.

On top of this, the company pays a healthy dividend, at 68 cents, which is likely to be higher once the company announces its Q2 results. This gives the stock a 3.54% dividend yield and will likely be higher once the next dividend is announced soon.

Moreover, at $19.46 per share, the stock is almost 2x its tangible book value per share of $9.95 (i.e., 1.96x). This is likely to be even cheaper once the company announces its Q2 earnings and TBVPS.

TipRanks puts its average price target from 15 analysts at $24.10 per share, or 24% over today’s price.

Citizens Financial Group (CFG)

Citizens Financial Group (NYSE:CFG) also makes a lot of money like many of these other regional banks. The company is forecast to make 12% more earnings-per-share in 2023 at $5.15, up from $4.60 forecast for 2022.

As a result, the stock is cheap at just 8.09x EPS for 2022, and just 7.2x for 2023. This is one of the most undervalued bank stocks on this list.

Moreover, the company pays a $1.56 annual dividend, giving the stock a healthy dividend yield of 4.24%. More importantly, the company is likely to raise its dividend again when its upcoming Q2 earnings come out.

In addition, Citizens Financial Group has started to repurchase its own shares. This is going to help the company to be able to increase its dividends-per-share over time. In fact, TipRanks reports that 12 analysts have an average price target of $47.75, or 28.5% more.

KeyCorp (KEY)

KeyCorp (NYSE:KEY) is a regional bank that is forecast to show good growth, over 10%, into 2023. For example, analysts forecast that EPS will rise 10.1% to $2.39 per share from $2.17 in 2022.

That puts the stock on a forward P/E of just 8.2x for 2022 and 7.4x for 2023. This makes the stock very attractive to value investors, especially since its dividend costs the company just 78 cents. That represents a payout ratio of 35.9% for 2022.

This also gives KEY stock a healthy dividend yield of 4.45%. Moreover, 15 analysts surveyed by TipRanks have an average price target of $21.29 per share or more than 20% over today’s price.

Fifth Third Bank (FITB)

Fifth Third Bank (NASDAQ:FITB) is a regional financial services company that is forecast to show good earnings growth by 2023. For example, analysts now project 14.8% higher EPS at $4.18 per share, up from $3.64 per share in 2022.

That puts FITB stock on a forward P/E multiple of 9.28x for 2022, and 8.1x for 2023. This is about average for all the regional banks on this list and marked FITB as one of the most undervalued bank stocks.

Moreover, the bank pays an annual dividend of $1.20, which puts FITB stock, at $33.74 per share, on a dividend yield of 3.56%. This is likely to rise once the company likely raises its dividend after its upcoming earnings release for Q2.

The stock is also seen as undervalued by 15 analysts surveyed by TipRanks, which gives it an average price target of $44.50. That represents a potential upside of 32% over today’s price.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/undervalued-bank-stocks/.

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