Why Is People's United (PBCT) Down 2.9% Since Last Earnings Report?

A month has gone by since the last earnings report for People's United (PBCT). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is People's United due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

People's United Q1 Earnings Beat, Revenues Rise Y/Y

People's United reported first-quarter 2020 operating earnings of 33 cents per share, which surpassed the Zacks Consensus Estimate of 22 cents. Also, the bottom line was in line with the year-ago quarter’s reported figure.

First-quarter results reflected improvement in loan and deposit balances, and revenues. Also, a strong capital position supported the company’s results. However, elevated expenses and margin contraction were headwinds. Further, a drastic increase in provision for credit losses due to application of CECL and the impacts of the coronavirus outbreak was a major offsetting factor.

After considering certain non-recurring items, net income available to common shareholders was $126.9 million compared with $111.1 million reported in the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Revenues were up 21.6% year over year to $519.8 million in the first quarter. Also, the top line beat the Zacks Consensus Estimate of $498.2 million.

Net interest income, on a fully taxable basis, totaled $403.7 million, up 18.7% year over year. The rise was mainly due to higher earning assets. Nevertheless, net interest margin contracted 8 basis points (bps) to 3.12%.

Non-interest income rose 30.9% year over year to $123.8 million. Rise in almost all components of income led to the upside.

Non-interest expenses jumped 15.5% on a year-over-year basis to $320.1 million. Increase in all components, except for other expenses, led to the rise.

Efficiency ratio was 54% compared with 57.3% in the prior-year quarter. A decline in the ratio indicates improved profitability.

As of Mar 31, 2020, total loans were $44.3 billion, up 1.6% from the prior quarter. Also, total deposits grew 2.6% sequentially to $44.7 billion.

Credit Quality Deteriorates

As of Mar 31, 2020, non-performing assets were $261.8 million, up 24.6% year over year. Ratio of non-performing assets to total originated loans remained stable at 0.54%.

Also, net loan charge-offs more than doubled year over year to $10.6 million. Net loan charge-offs as a percentage of average total loans were 0.1% on an annualized basis, up 4 bps. Provision for loan losses was $33.5 million compared with $5.6 million in the year-ago quarter.

Capital Position and Profitability Ratios

As of Mar 31, 2020, total risk-based capital ratio decreased to 11.3% from 12.4% recorded a year ago. Tangible equity ratio was 7.4%, down from 7.7%.

Return on average tangible stockholders’ equity was 11.8%, down from the prior-year quarter’s 13%. Return on average assets of 0.89% declined from 0.96% as of Mar 31, 2020.

2020 Outlook

Runoff in the acquired United Financial’s portfolio is anticipated to be $200-$300 million for 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 8.08% due to these changes.

VGM Scores

Currently, People's United has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, People's United has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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