Tag archive for "Dividend Stocks"

By the Numbers

Contrarian View: Buy European Stocks

No Comments 14 January 2012

With the stock market off to a solid start two weeks into the new year and following a string of mostly positive economic reports, investors have warmed up pretty quickly to U.S. equities. This, of course, has been playing out for a couple of months as market pundits and equity strategists developed and announced their predictions for the new year. While we mostly subscribe to the view that U.S. stocks seem well positioned for a decent run in the years ahead, especially as the U.S economy continues to recover and the Europeans slowly sort out their fiscal mess, we have started to look at European equities as perhaps the best place to hide from the crowd. More specifically, as investors shun the stocks of European companies simply by virtue of their domicile, we think several companies offer compelling investing opportunities for those willing to tune out all the noise.

MarketGrader.com does not yet grade companies listed in European exchanges, so our analysis is mostly limited to those with American Depositary Shares. More specifically we have looked for companies with strong MarketGrader scores, of course, but also with compelling valuations and a significant share of their business generated outside of Europe’s sickest areas in the continent’s indebted south. And those domiciled in countries with their own currencies, and thus monetary policies independent of the ECB, seem to us to offer even greater appeal. Among them we find a handful we’ll be highlighting in this column in coming days. The first one, and perhaps one of our three favorites, is Statoil ASA ADS (NYSE: STO).

Statoil is Norway’s national oil company. It generates 78% of its revenue in Norway, 10% in the U.S. and another 10% across the rest of the world. While Brent crude has traded around $110 a barrel for the better part of the last year, the Norwegian Krone has depreciated by approximately 15% in the last six months against the U.S. dollar, mostly because of the strengthening of U.S. economic indicators, a dynamic that boosts the value of the company’s dollar-based revenues. And as it happens to be, Statoil, with an overall grade of 78.8 (out of 100,) is the highest ranked company among the 18 oil ‘majors’ followed by our system and classified in the Integrated Oil industry. Chevron and Suncor Energy round out the top three in the group.

Statoil’s 12-month trailing net income of $11.4 billion is up 25% from three years ago, which might not seem like a hit-it-out-of-the-park number but considering that in the depths of the global recession two years ago, for the 12-month period ended in September of 2009, the company earned $2.08 billion, the latest results reveal a remarkable comeback as energy demand roared back to life. Of particular importance is the fact that even though capital expenditures have been growing at a year-over-year clip of about 25% in the last four quarters, the company’s free cash flow last quarter almost tripled from the year-earlier period. This helps explain an across the board margin expansion in the last 12 months, with EBITDA margin at an impressive 41.7% and operating margin of 29%.

Statoil’s stock trades at only seven times trailing 12-month earnings despite a two-year EPS growth rate of 134%. Its P/E based on the next 12 month’s earnings estimates is only 9. Furthermore, if the company’s $17.04 billion in cash is subtracted from its valuation, the stock’s trailing P/E would fall to a ridiculously low 5.7.

It’s important too that investors understand the company’s ownership structure, which we think adds to its appeal. The number of shares outstanding has remained virtually unchanged in the last five years, at 3.18 billion, probably as its largest shareholder, the Norwegian government who owns 71% of them, prefers to avoid diluting its stake considering how important the company’s contribution is to national coffers. To put this into perspective, Statoil’s 12-month trailing revenue of $110 billion is the equivalent of 41.5% of Norway’s GDP of $265 billion, according to the IMF’s most recent figures. With such a small float (29%) owned by shareholders other than the government, even a small increase in demand for the stock, such as what would happen once it’s clear that Europe will sort out its current troubles, could drive up the share price pretty quickly. And while at $80 billion in market cap the company’s valuation might seem too high to move to the upside too quickly, at $25 (today’s close) the stock is trading 40% below its pre-Lehman high of $41.68, reached in May of 2008. And yet when the company reports earnings next month February 9th, if the consensus estimate is somewhat close to the reported number, Statoil is expected to have earned $2.67 per share, above the $2.63 earned in fiscal year 2007, right before the financial crisis brought the world economy to a halt. The company’s return on equity, currently at 26.23% is also almost back to the pre-recession level of 28%.

Statoil’s $20.35 billion on total debt, or $3.3 billion in net debt when cash on hand is subtracted, accounts for only one third of its total capital, giving the company ample room to increase its dividend payout which at current levels translates into a yield of 3.9%. And with interest rates at rock-bottom levels and the company’s excellent return on equity and return on invested capital (52.4%) it would be silly not to continue funding exploration and production projects with additional debt. It would also be silly for investors to assume Statoil is simply another European stock to avoid.

Readers that are not yet MarketGrader.com subscribers may view our complete analysis of Statoil by clicking here or by visiting this week’s featured Honor Roll: Large Caps.

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By the Numbers

Barron’s Highlight of the Week: Republic Bancorp Inc. (RBCAA)

No Comments 12 May 2011

Today MarketGrader is highlighting this small Kentucky-based bank, which has excellent financials  and a pristine record, on Barrons.com. Republic Bancorp (RBCAA) is not only the highest graded bank in all of MarketGrader but the highest graded company in the entire Financial sector and the eighth-ranked stock among our entire coverage universe.

The company has 43 banking centers in Kentucky, Indiana, Florida and Ohio and over $3.6 billion in assets. Its market capitalization is only $385 million. Its trailing 12 month revenue, at the end of the first quarter, was $314 million with $91.5 million in net income. Its first quarter results were remarkable, with revenue increasing 22% year-over-year to $180 million and net income jumping by 60%. The bank has beaten the consensus estimate of the two analysts that follow it by an average of 21% in the last six quarters.

The stock trades at 4.7 times trailing 12 month earnings per share, virtually the same ratio when compared to its full fiscal year estimates (forward P/E). And following today’s across-the-board market drop, at its closing price of $20.17, the stock can be bought for less than the $20.50 in tangible equity per share. Buyers at this price will essentially get the bank’s dividend and its future earnings stream for free.

Republic Bancorp’s grades are very strong not only across our Growth and Value indicators but also according to our Profitability and Cash Flow measures, which explains its overall remarkable grade of 90. The stock’s Sentiment, by the way, is also positive, with a score of 7.7 out of 10. From a profitability standpoint, the bank’s net interest margin is the equivalent of 8.9% of its interest earning assets, compared to 3.6% on average for all public banks followed by MarketGrader and based on trailing 12 month results the bank’s return on equity was 21% while it returned 2.8% on assets that averaged $3.3 billion in the last four quarters. The average ROA of all banks in our system was 0.3% during the same period.

Republic Bancorp’s capital position couldn’t be stronger. It reported Tier 1 (core) Capital of 23.9% last quarter compared to the bank average of 12.7%. Its non-performing assets fell in the last year to 9% of tangible equity from 12.4% a year ago. Again, for comparison purposes, non-performing assets for all banks followed by MarketGrader average 73% of tangible equity plus loss reserves, underscoring the difficulties banks are having working through the bad assets they piled onto their balance sheets during the recent free credit mania. RBCAA today has $0.70 in loss reserves for every dollar in non-performing assets, as solid as a bank gets. Underlying all of this, the bank’s stockholder’s equity is very clean, with intangible assets representing only 2.3% of common equity.

To top it all off, the bank increased its dividend, as it usually does, at the end of 2010, and it now pays $0.15 per share, yielding almost 3% at today’s stock price. Two things are remarkable and worth mentioning about its dividend: first, dividends paid in the last 12 months accounted only for 7.5% of cash flow and 12.7% of after-tax earnings, giving it plenty of room to increase it, although given management’s apparently conservative style, large special dividends are unlikely. And second, the bank never had to cut its dividend during the financial crisis like so many others did. Banks looking for acquisition targets with a decent presence in the south could do worse than look at RBCAA.

For a complimentary report on Republic Bancorp please click here. For our complete breakdown of the entire banking industry and the financial sector we invite you to take a free trial of our service. Click here to see what you get with a subscription to MarketGrader.com.

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