New York Community Bank: A Hidden Gem in the Regional Banking Sector

Mid Caps 2 replies 0 votes 1149 views Tags:  Financial AnalysisJ.P. Morgan upgradeNew York Community BankNYCBregional bankingStock Market

It seems like New York Community Bank (NYSE: NYCB) has been on quite a ride lately! Over the past year, its shares have been appreciated by an impressive 32.75%, outpacing the broader market represented by the S&P, which managed only a 7.21% gain.

The recent upgrade from J.P. Morgan certainly caught some attention. NYCB shares are now rated as "overweight" by them, which basically means they believe the stock has the potential to be outperformed by its peers. The reason behind this upgrade is the transformation the company has undergone, including the acquisition of significant teams from Signature and First Republic. With around $120 billion of assets behind it and a fresh new energy under CEO Tom Cangemi, NYCB is seen as a potential major player in the market in the coming years.

Strong earnings for the second quarter of 2023 were recently reported by the bank. This was the first quarter where all the legacy franchises were combined into one entity, and it seems the move has paid off. Expectations were beaten, with non-GAAP EPS coming in at $0.47, exceeding estimates by $0.16. Moreover, its revenue of $1.2 billion was $315.8 million ahead of estimates. These numbers suggest that untapped potential is being unlocked by NYCB and economies of scale are being capitalized on.

NYCB has become a formidable force in the regional banking sector. The second-largest multi-family portfolio in the country is boasted by them, and they hold prominent positions as a mortgage warehouse lender, mortgage originator, and sub-servicer. Jerome Powell's recent speech, with hints of a potentially dovish approach, coupled with a projected decline in interest rates, could bode well for NYCB's mortgage activity, driving increased revenue and core earnings.

When it comes to valuation, NYCB's shares still appear to be undervalued. Even though five-year highs have been reached, the stock is trading at a discount to its book value, which is unusual for banks. Traditionally, banks are traded at a premium to book value, but NYCB's strong net income and EPS generation justify a higher valuation.

Comparing NYCB to its peers, it does seem to have higher price-to-earnings (P/E) ratios. However, the current P/E of 11.11 is still relatively low, and it reflects the bank's ability to generate additional revenue and net income through economies of scale. The price-to-book (P/B) ratio is also slightly below the peer group average, but again, the bank's performance justifies a higher valuation.

Looking at NYCB's loan-to-deposit ratio (LDR), an improvement is apparent over time. While it used to be on the higher end compared to its peers, NYCB has managed to significantly reduce its previous imbalance, which is a positive sign for investors.

It seems that NYCB has come a long way from the uncertainties it faced during the regional banking crisis. The recent upgrade from J.P. Morgan is a positive signal, and the bank's strong Q2 earnings show its potential for growth. While it may not be as undervalued as it once was, value is still offered to investors by NYCB. If the positive trends continue, the stock might even reach the $15 level again, and a dividend increase could be in the cards for 2024. All in all, the future looks promising for NYCB, and it's no wonder that investors and analysts alike have been caught up in its potential.

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