Market Overview

Banco de Chile - Growth & Income

For investors looking to capitalize on growth in the emerging markets, it can pay to think outside the BRIC - or Brazil, Russia, India and China. One red-hot destination often overlooked is Chile. This South American gem has been one of the best performing markets of 2010 due in large part to surging copper prices.


One company sure to capitalize on Chile's continued economic growth is Banco de Chile (BCH), the country's largest bank.


The bank recently reported a 46% increase in net income driven by strong growth in residential mortgage loans and improving credit quality. Earnings per share are expected to grow an impressive 57% overall in 2010.


Third Quarter Results


In the third quarter 2010, total operating revenues increased 8.3% over the same quarter in 2009, driven by an 18.3% increase in net interest income. Loans to customers grew by 8.4%. The net interest margin, defined as net interest income divided by average interest earning assets, expanded from 4.25% to 4.74%.


Meanwhile, provisions for loan losses declined 31.6% over the same period as management has seen improving credit quality trends over the last few months.


The efficiency ratio, or how well the company managed its operating expenses, improved slightly from 45.7% to 45.4% (the lower the better). Earnings per share grew by a stellar 45.6% over the same period.


Growth


Analysts revised their estimates for both 2010 and 2011 significantly higher following the strong quarter. The 2010 Zacks Consensus Estimate is $5.81, a 57% increase over 2009 EPS. The 2011 estimate is currently $6.30, equating to 8% EPS growth.


Estimates have been increasing over the last several months, as seen in the company's Price & Consensus chart:


BCH: Banco de Chile


Income


The bank also pays a nice dividend which currently yields 2.9%. This beats the industry average of 2.1%.


Its payout ratio is relatively high at 59%, but not alarmingly so considering the company's strong financial picture.


Valuation


The stock trades at 15.1x forward earnings, a premium to the industry average of 13.4x. Its price to book ratio of 4.3 is significantly higher than the peer group multiple of 1.5. However, the bank's superior returns on equity help to justify this premium. ROE was 27% over the last 12 months, compared to just 11% for its peers.


Read the August 27 article here.


Last Week's Growth & Income Zacks Rank Buy Stocks:


Sensient Technologies (SXT) recently delivered its fourth consecutive positive earnings surprise on strong revenue growth and operating income. The company has also been successful in thwarting rising raw material costs with price increases. Read the full article.


Iron Mountain Inc. (IRM) recently boosted its dividend my more than 200%. Management also boosted its EPS guidance for 2010. Read the full article.


Shaw Communications (SJR) produces steady free cash flow and yields a hefty 4.2%. The company expects 2011 to be another year of solid growth and analysts have been revising their estimates higher. It also trades at a discount to its peers. Read the full article.


Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.


 
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The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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