Shares of Onbancorp, an upstate New York savings bank that is converting to a commercial bank, are poised for a big gain, some analysts think.
Onbank has been selling at 7.6 times its expected earnings per share next year, compared with average multiples of 8.2 for savings banks and 9.8 for healthy commercial banks its size in the Northeast.
Based in Syracuse, the $2.4 billion-asset Onbank is buying two commercial banks that will increase its assets by $1 billion, or 42%. Analysts think that will put upward pressure on the price-to-earnings multiple.
The thrift's chairman, Robert J. Bennett, has said that commercial banks can compete better in financial services than thrifts. He was an officer at Boatmen's Bancshares, St. Louis.
This quarter, Onbank expects to complete acquisitions of the $770 million-asset Merchants National Bank, Syracuse, and $250 million-asset Union National Bank, Albany, from Midlantic Corp., Edison, N.J.
The thrift expects to complete its transformation to a commercial bank early next year.
Banking analyst Stephanie H. Giroux of PaineWebber Inc. said she could find "no justification" for Onbank's lower-than average valuation.
Profits have been strong since the thrift switched to stock from mutual ownership in 1988, she said.
Gains in Multiple Seen
"We believe the stock's multiple should begin to surpass the savings bank peer multiple as it moves more in line with the higher price-earnings multiples of small regional commercial banks," she said.
She expects the stock to reach at least $31 by yearend 1993. That would amount to a 17% gain over its price of $26.50 on Monday.
Ms. Giroux said the biggest drawback to investing in Onbank is the lack of liquidity, which may partly account for the over-the-counter stock's lower-than-average multiple. On average, only about 27,000 shares trade daily.
That means, she noted, that "Onbank is not a stock which investors can easily sell should the company's outlook change."
Anthony J. Polini of A.G. Edwards & Sons Inc. said Onbank has compiled an "outstanding five-year performance." Earnings per share have grown at a compound annual rate of 22% since 1987, and the dividend on common stock has more than tripled since 1989.
Credit quality is good, with nonperforming assets a low 0.34% of assets on Sept. 30. Nonperformers will rise in the fourth quarter as a result of its acquisitions.
A Favorable Indicator
But Mr. Polini pointed out that "the pro-forma ratio of 1% is still much better than the national averages of 3.37% for banks and 4.08% for thrifts and ranks Onbank among the best in the nation."
Given this performance, Mr. Polini things Onbank "could very well command a premium price-to-earnings multiple over the banking industry" as it gains wider recognition from investors.
Mr. Polini has a 1993 price target for the stock of $34 to $38, which he said "suggests annualized total return potential of 30% or more through 1993."