Like many banking stocks, ACNB is trading at ten times earnings. The rest of the market is inflated well above that ratio. Eventually, this stock will catch up the average of the rest of the market. If that happened to this stock it would be trading at 15 times earnings with a 50% increase in its stock price. Taht could happen quickly.
ACNB is a small, regional bank primarily in the Southwestern region of the United States. They are a traditional bank offering depositing and lending services as well as financial services to its customers.
I have been very bullish on the banking industry, and for good reason. As it turns out, the numbers are saying that is a good call. Here is the interest income and earnings per share for this particular bank over the past several years.:
2011: $41.8 $1.43
2012: $40.4 $1.49
2013: $37.6 $1.56
2014: $37.5 $1.71
2015: $39.5 $1.83
Interest income has been a bit tough to earn over the past many years. The Federal Reserve took extreme measures to shore up economic activity in the wake of the Great Recession. Interest income, for banks, is earned from the difference between the interest paid out on deposits and what a bank brings in via interest income from funds lent out. However, interest rates have been exceptionally low. Because of that there has been very little room to earn interest income.
The economy is expanding at a nice clip. Incomes, which have been stagnant for years, are increasing. Expenditures by Americans are increasing. Business is moving forward and will continue to expand. And, interest rates are going to go up as a result of the expansion that the nation is finally seeing. When interest rates increase, then banks will be able to earn a great deal more revenue from its loan portfolio.
Because of the financial crisis of 2008, banks have fallen out of favor. Bank stocks have been left behind in the latest stock market surge. In fact, the average earnings-per-share ratio is approximately 15 from a historical basis. However, the average today is upwards of 25. This is noteworthy. At the same time, despite such above average earnings-per-share ratios, ACNB is trading at a mere 10-times earnings. That makes this stock, as well as many other bank stocks, bargains.
The reason why this stock is such a bargain is simple: Investors have been slow to getting back into buying bank stocks. These stocks were the reasons that the entire financial system almost collapsed completely. Naturally, there is hesitation to getting back into this market. But, the banking sector now is surrounded by laws that will not allow for a repeat.
The fundamentals for banking stocks are strong. With the economy expanding, and with that interest rates heading higher, then banks in general are going to be more profitable. These are the reasons why I have been bullish on banks.
But, this bank itself stands out a bit. During 2013, this was a period of notable economic drawdown. Yet, ACNB weathered this drawdown well and emerged with expanding earnings off of only slight growth in interest income. If you have a bank that is earning during larger periods of economic slowdown, when the economy does expand a bank will do well in that kind of landscape. And, the earnings have been turning higher. 2016’s final numbers are expected to exceed the previous year’s levels. That upward trajectory on earnings is what makes for a solid investment.
With an expanding economy and interest rates heading higher this bank is proving that it will increase its earnings in that landscape. This stock is underpriced compared to the rest of the market, making it a bargain. Holding on to this stock after adding it into your portfolio and you will do very well in the long run. A bargain like this can’t be passed up.
|This media report from Macroaxis distributed on January 25, 2017 was a factor to the next trading day price decrease.The overall trading delta against the next closing price was 0.33% . The overall trading delta when the story was published against the current closing price is 30.05% .|