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What are we looking for?

North American financial companies trading below book values that have positive trends in dividend growth and rising consensus estimates.

The screen

There has been strong interest in North American financials over the past few months, especially following a positive third quarter of earnings reported throughout the banking industry, yet some financial firms still appear undervalued as measured by common metrics used to value financial companies.

Today's screen looks to uncover these securities, ranking North American companies in the GICS financial sector that are trading at book value multiples below 1.0 times as measured over the last reported fiscal year. (GICS stands for global industry classification standard.)

The book-value multiple is calculated by dividing the total company market capitalization by the net assets of the company, with a multiple less than 1.0 indicating the company is currently valued less than its net assets (or book value).

Companies included must also have a long-term EPS growth consensus estimate of at least 5 per cent, which represents Street earnings expectations for the firm over the next three years.

Lastly, companies must have seen dividend per share growth of at least 5 per cent over the past year, suggesting increased shareholder payouts in the future.

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What did we find?

Twenty North American financial firms met the criteria of the screen, with most companies based in the United States. Bank of America is the largest player to make the screen and trades at a shockingly low price-to-book value of 0.67. The stock has rallied since mid-February of this year and based on this apparent undervaluation and strong EPS and dividend per share growth metrics, Bank of America could see considerable growth in the future.

This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.

Ryan Gottschalk works in the financial and risk unit of Thomson Reuters and specializes in asset management.

Financial stocks trading below their book values

CompanyTickerRecent Price Close ($U.S.)Market Cap ($Mil U.S.)Book ValueP/BVEstim. EPS GrowthDiv. per share growthForecasted Div. Yield
Bank of America Corp.BAC-N17.01171,886.84256,176.000.678.0%24.9%1.47
American International Group Inc.AIG-N59.2860,888.5789,658.000.6817.9%51.9%2.11
CNO Financial Group Inc.CNO-N16.062,812.734,138.500.687.7%14.8%1.93
Legg Mason Inc.LM-N29.252,954.454,213.560.7013.6%10.7%3.02
Citizens Financial Group Inc.CFG-N27.3513,999.8619,646.000.719.9%12.5%1.67
Capital One Financial Corp.COF-N74.8436,095.4447,284.000.765.7%6.7%2.14
Metlife Inc.MET-N47.9752,725.5367,949.000.788.3%7.7%3.32
Regions Financial Corp.RF-N10.9613,491.4816,844.000.805.4%13.3%2.38
XL Group Ltd.XL-N35.309,497.8111,677.080.8116.0%11.7%2.27
Morgan StanleyMS-N34.0063,675.9275,182.000.859.5%26.7%2.09
AXIS Capital Holdings Ltd.AXS-N58.695,190.845,866.880.885.0%16.0%2.41
Lincoln National Corp.LNC-N52.1411,917.1413,617.000.889.8%21.0%1.97
Zions BancorpZION-Q32.256,574.167,507.520.8814.6%27.3%0.87
Maiden Holdings Ltd.MHLD-Q13.851,192.891,347.820.8912.0%7.5%4.12
Element Fleet Management Corp.EFN-T9.633,725.994,131.480.9012.6%196.5%0.57
Federated National Holding Co.FNHC-Q15.24210.08232.580.9020.0%20.9%1.46
Prudential Financial Inc.PRU-N88.8238,192.6041,890.000.916.8%15.7%3.18
Hartford Financial Services Group Inc.HIG-N44.4616,794.0717,642.000.956.4%16.9%1.98
Manulife Financial Corp.MFC-T14.6328,875.0629,876.440.9711.5%13.1%3.86
Unum GroupUNM-N36.528,476.998,663.900.986.8%8.5%2.11

Source: Thomson Reuters Eikon