M&T Bank (MTB) used to be a great buy-and-hold investment. From 1985 to 2005 the stock went from $2.50 to $100. MTB peaked in 2007 around $120 and is around that price today. With low interest rates squeezing profit margins, M&T is having trouble growing profits.
M&T was founded in 1856 and has a heavily concentrated presence of more than 700 branches in the New York/Maryland surrounding area, where it is the number one small business lender. Commercial real estate is showing strong loan demand, and mortgage banking has gotten a boost from new loans and refinancings sparked by low interest rates. But its the low rates that’s hampering profits from this and other Regional banks.
MTB has been profitable in every quarter the past 36 years and Berkshire Hathaway owns around 5% of the company. MTB management puts profits to shareholders first, during the last 30 years a third of profits have gone to dividends, another third to repurchase shares, and the rest for retained capital. To fuel growth, M&T Bank is big into acquisitions, with 23 in the last 25 years, including Provident Bancshares, Wilmington Trust and most recently Hudson City Bancorp. M&T was expected to complete the merger with Hudson City Banc by April 30th, and now that date has been pushed back to September 30th.
One Year Chart
MTB hasn’t moved much in the last year, the one-year chart looks like a heart monitor. Normally worth 16x earnings when things are going good, the stock is a little high now as it carries a 15 P/E even though profits have been down for what’s going on two years.
M&T missed the $1.77 estimate by 12 cents last qtr. And 2015 estimates fell from $8.38 to $7.95.
Fair Value
I peg MTB to be worth 13x earnings, and with a P/E of 15 its overvalued. The stock carries a 2.5% yeild but the company hasn’t increased the dividend since 2008.
Sharek’s Take
The stock market is currently in search of new leadership, as the current market leaders (a) have been going up for many years and (b) are now overvalued. Before there is a changing of the guard though, something will have to be shaken up. Like a market correction, a political crisis or high oil prices. What we really need is a little inflation and higher interest rates to get this stock moving. Until then I feel MTB will continue basing. But when the tide turns, this stock should have some catching up to do.
View the Earnings Table here.View the Ten Year Chart here. View the Profit History here.
