Shares of Alliance Bankshares Corp. of Chantilly, Va., stock outperformed the Nasdaq bank index last year, and the research group at Howe Barnes Hoefer & Arnett Inc. expects the shares to continue to do so.
For the second straight year Howe Barnes named the $644 million-asset Alliance as one of its four top community bank stock picks. Howe Barnes has been assembling the list of top picks since 2000, and Alliance is the first stock to make the list two years in a row, said Daniel Cardenas, the director of research.
"We really think the market didn't fully realize the growth potential of this company," he said.
Howe Barnes has had a good track record of picking stocks. Its picks have outperformed the Nasdaq bank index in five of the past seven years. Its other selections for the upcoming year are Nexity Financial Corp. in Birmingham, Ala., Crescent Financial Corp. in Cary, N.C., and Temecula Valley Bancorp Inc. in California.
Other stocks analysts are bullish on include Columbia Banking System Inc. of Tacoma and Gateway Financial Holdings Inc. of Elizabeth City, N.C.
Alliance's stock rose 12.5% last year and closed at $16.58 Thursday.
In a report issued this month, Howe Barnes said Alliance's expenses should decline now that it has closed its stand-alone mortgage operation, and that it is expected to add assets by hiring more commercial bankers.
Howe Barnes is predicting earnings of $1.22 a share for this year and has set a price target of $20. (Alliance has not reported full-year results for last year, but Howe Barnes expects it to report earnings of 90 cents.)
Jason Werner, a Howe Barnes analyst, said he likes the $684 million-asset Crescent because it is in a fast-growing market and targets small businesses that are not getting much attention from the large banks in its area.
"What you are hoping for is that they can get their fair share of the growth. If they can provide a little better service than most of their peers, they can continue to grow," Mr. Werner said.
Crescent's stock has risen 7.5% this year and closed at $13.75 Thursday. Howe Barnes has set a target price of $16 by yearend and is projecting earnings per share of 85 cents this year, versus an estimated total of 69 cents for last year. (Crescent also has not yet reported full-year 2006 results.)
Mr. Werner said he is bullish on the $857 million-asset Nexity because it has a unique business model and is in fast-growing markets in the Southeast. The company acts as a correspondent bank for other community banks; most of its loan growth comes from buying loan participations from small community banks. The purchases give the portfolio some diversity that can help Nexity weather whatever happens in the market, he said.
"Any given bank may have problems, but Nexity paints a broad picture. They can talk to other banks," Mr. Werner said.
Nexity's stock closed at $11.93 Thursday. Howe Barnes expects the company to report earnings of 66 cents a share for last year and 80 cents for this year and set a target price of $16.
As for the $1.1 billion-asset Temecula, Howe Barnes said its growth prospects are strong because its branches are mainly in the fast-growing Inland Empire region of California and it has Small Business Administration loan offices in 13 states.
The stock closed at $22.90 Thursday, and Howe Barnes has set a price target of $30.
KBW Inc.'s Keefe, Bruyette & Woods Inc. of New York sees several community bank companies as good investments for this year and recommends selling one, Corus Bankshares Inc. (See related story on page 1.)
Matthew T. Clark, a Keefe Bruyette analyst, said at a conference early this month that he recommends the $2.5 billion-asset Columbia, because it has had success taking market share in a growing region that has experienced consolidation. He forecasts earnings of $2.16 a share for this year and has set a price target of $37.
The stock closed at $34.02 Thursday. Columbia's 2006 earnings, which will be reported Jan. 25, are estimated at $2.03 a share.
Keefe Bruyette has set a price target of $18 and forecasts 2007 earnings of 90 cents a share for the $1.1 billion-asset Gateway, which operates in the attractive coastal markets in Virginia and North Carolina and recently announced an acquisition in Richmond. Since 2000 it has posted average annual earnings growth of 40%. Its stock closed at $14.65 Thursday.
The firm is also high on the $10 billion-asset FirstFed Financial Corp. of Santa Monica, Calif., and the $639 million-asset Omni Financial Services Inc. in Atlanta. It set a price target of $73 a share for FirstFed, which closed at $65.00 Thursday, and $12 for Omni, which closed at $10.10.
