SNV

dawgball

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selkirk and wayne -- I think you guys are pretty knowledgable on financial stocks. SNV seems to be a good play (no exposure to subprime) as they spin-off in early '08.

From another board that I follow for investments and a poster who I respect:

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Synovus is a conglomerate of community banks in the growing southeast. They also own an 81% position in Total System Services (TSS), a payment processing firm. Right now their total market cap is $7.5b, with a 17 year stock price history. Currently the RMS = -2.13 with a Return Factor of 2.05. I like high yielding stocks, and this is no exception. This one is a bit more complicated than typical - see below.

Since the August meltdown I have been looking for baby/bathwater financials and such, hoping to cherry pick the ones that will recover handsomely once sanity returns to the financial sector (CSE and MMA are the other two I have bought into). I believe SNV is one of those. Synovus has no subprime exposure. Net chargeoffs have risen to .51% from .2% last year. These are very benign numbers. Their book value has been rising at 13.5% CAGR (EPS about the same) with the banking portion of the business responsible for the majority of the increases. These will take some hit due to the headwinds presented by the current financial climate, but the effect of these headwinds is a decrease in growth rather than a fall off a cliff.

So, it has been beaten down, but what are the catalysts that are and will drive prices? Two big ones, both related to their spinoff of their ownership stake in TSS. On Dec. 31st they will split in two. This has two big effects:

1. SNV will be falling out of the S&P 500 due to their decreased market cap. There has been downward price pressure due to index fund type selling. The drop this late in the year is likely due in part to this phenomena.

2. The split itself early next year will provide a catalyst now that the two entities will be judged separately. Why is this good for SNV? Their valuation will change dramatically.

To understand the valuation ratios you must dig into the spinoff details. Their new stock price will be at SNV-TSS*.484. One can lock in the post-spinoff price now with their "when issued" shares - ticker SNV-WI. Right now this issue it sitting at $10.65. At the spinoff the new SNV with this stock price sports a P/E of ~9 and a yearly dividend of $.68 (6.25%) with a likely dividend CAGR of 6%.

M* has this as a wide moat 5 Star stock with a fair value estimate of $21. Their Dividend newsletter guy has stated that this is "the most compelling recommendation he has ever made." Having looked into it there is no chance of SNV going to 0 nor any pressure on the dividend (i.e. it is safe). Even now with the stake in TSS it looks to be a compelling issue. With TSS divested it looks to much more so - EPS growth curve of SNV itself (>13%) is much higher than the current P/E - one of the metrics Jim looks for in his aquisitions. From a BMW standpoint we have a beaten down issue with a pretty good pullback on the RF slingshot.

I have gone through it and tried to find holes or compelling reasons not to buy - I can't find any. There is no compelling issue for SNV to be beaten down this far. It is currently priced for a pretty well distressed outfit - the actuality is a solid, diversified, low-leverage outfit. With a bit of time arbitrage I think there will be a nice return on SNV down the road.
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Would love to hear your thoughts on this stock.
 

DOGS THAT BARK

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Happy holidays brother dawg--kirk much sharper than I and would be interested in his thoughts.

I have several smaller banks like this flagged as I think there is lots of upside on several after sell off as it took whole sector down--the good with the bad. I have hard time sifting thru the data to see who is exposed and who not. In looking at SNV it looks like a good bounce back stock--only chink I saw was their decreasing div (forward 3.3% trailing 3.4%). Rarily do banks decrease div--they did so for reason--and I can't tell reason--their quarterly earnings are down somewhat but not enough to trigger decrease in div in my view--so my question would be why.

I keep searching for these bounce back financials and as hard as I try can't find any better than one I picked up from Kirk last year --BNS BANK OF NOVA SCOTIA --In fact bought more shares last week--extremely strong #'s for a bank especially one its size- has 4 to 1 cash to debt ratio and have increased their div from 3.1 to 3.5. Its currently bout $6 off yearly high but where most have had negative return for year--its had a 14% increase past 52 weeks despite others taking big hits.

back to SNV--On stocks like this that look good but not sure--I will split my intended stake in portions--will use 1/3 of stake to purchase initially and put stop loss at 10% of initial price-then add a 3rd if 5% gain and again on another 5% gain.
Keeps my losses at bay and lets profits run.
 

selkirk

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Dawgball the financials have a lot of bad news baked into the share prices. I would prefer US regional banks, int. banks, also a few insurance companies would be worth a look.

the large US banks may also work, have no idea of the writeoffs and the amount to come, would be overall bullish on the group would not be shocked if more surprises come in January though.

as for SNV when looking at estimates they seem to be down slightly 10% year over year, however the spinoff probably changes the company. do like the yield at 3.50%.

one item to look at is the health of the housing market and the overall economy. many experts and predictions fail to look at the different regions. heard one observer who is bullish going into 08 talked about the housing market in Newark. housing prices were up on average 4%, so would hope to avoid any areas that saw -10%.

SNV seems a safer choice than his other two recommendations, that look interesting however there are questions on them. CSE, and MMA.

MMA has a market cap of 570 million or so and (hi 32.40 low 13.01 close 14.73 -7.42%.
now I cannot find estimates for this company and though it is cheap?? pe 10.40

they have some interesting solar projects and some good partners, however how easy will be to raise money for the projects and at what cost would be one concern.

also hate management that sees it stock drop from 32.40 to 14.73 and then state they see no reason.... the market precieves certain challenges.
need more research on this small cap.

CSE also has a high yield 13.80%, and most estimates have flat earnings going forward however most were probably made before the last 30-50 days.

wonder how the cost of capital has effected this company.

wonder if CSE and MMA will have to cut their dividend also not sure why MMA pays such a high dividend when they have some large projects on the board..... (they did get some outside financing.).

SNV looks fine however it will depend on how the region does economically.

would also take DTB advice and build up a position in slowly. would rather do that than buy and have a string of writedowns by some major banks,....then people will dump all financials....makes no difference.

thanks
selkirk
 

dawgball

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Thanks, guys. Your opinions are very valued here!
 
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