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Top Performing Dividend Payers in Finance with the Most Upside Potential (DB, ORI, STC)

by
February 18, 2013 8:49 am
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It is not unusual for stocks on a tear to overrun their mean price targets, which is a signal of how far analysts on average expect the share price to climb.

Many of the top performing dividend payers in the financial sector over the past six months, such as AllianceBernstein (NYSE: AB), Barclays (NYSE: BCS) and Radian Group (NYSE: RDN), have done just that. Others are at or near their mean price targets.

But analysts believe that Deutsche Bank (NYSE: DB), Old Republic International (NYSE: ORI) and Stewart Information Services (NYSE: STC) still have some room to run, despite rising more than 28 percent in the past six months.

Deutsche Bank

This Frankfurt-based global banking and financial services company has a market cap of more than $44 billion. Its dividend yield is near 1.4 percent, and the forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio.

But the long-term earnings per share (EPS) growth forecast is less than nine percent and the return on equity is less than six percent. Its price-to-book (P/B) ratio is less than one.

The number of shares sold short as of the January 31 settlement date represents less than one percent of the float. The short interest has been dwindling since November.

The one analyst who follows the stock and was polled by Thomson/First Call rates the stock at Strong Buy and has for at least three months. That analyst’s price target, or where the analyst expects the share price to go, represents more than 20 percent potential upside over the current share price. That would be a level shares have not seen since July of 2011.

Shares have risen about 75 percent from the 52-week low last July. The share price is up more than five percent year to date, despite pulling back some in the past two weeks.

The stock’s performance has been in line with competitors Citigroup (NYSE: C) and UBS (NYSE: UBS) over the past six months, though it has outperformed the broader markets in that time.

Old Republic International

This insurance company is headquartered in Chicago’s Loop and sports a market cap of about $3 billion. The dividend yield is near six percent. Its long-term EPS growth forecast is about 10 percent, though the forward earnings multiple is a little more than the industry average P/E ratio. And the return on equity and the operating margin are both in negative territory.

Note that the short interest is more than two percent of the float, but that is the lowest number of shares sold short in at least a year.

The consensus recommendation of the three analysts surveyed is to hold shares, and it has been for at least three months. But their mean price target is about 19 percent higher than the current share price. The share price has not seen that level since May of 2011.

Shares have climbed more than 49 percent from the 52-week low back in July and reached a new 52-week high last week. Shares dropped almost five percent in late January after the fourth-quarter earnings report, but they have more than recovered since.

The stock has outperformed much larger competitor Travelers Companies (NYSE: TRV) and the broader markets over the past six months.

Stewart Information Services

Based in Houston, this title insurance company has a market cap near $645 million and a dividend yield of about 0.4 percent. The P/E ratio is lower than the industry average, but the long-term EPS growth forecast is only about five percent. The return on equity is a little more than 10 percent. The P/B ratio is 1.

Note that the short interest was more than 11 percent of the float at the end of January, which was the highest number of shares sold short in at least a year.

Two out of the three analysts surveyed recommend buying shares, and they have for at least three months. The mean price target is more than 24 percent higher than the current share price. That price target would be a new multiyear high.

The share price is about 90 percent higher than a year ago, despite pulling back about two percent last week following the earnings report.

Also despite the pullback, the stock has outperformed larger competitors First American Financial (NYSE: FAF) and Fidelity National Financial (NYSE: FNF), as well as the broader markets, over the past six months.


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