The potential superstock of the week is United Community Financial Corporation (UCFC) . It is a diversified financial services company opera...

Weekly Superstock Scan 23 Apr 2018 - 27 Apr 2018: United Community Financial Corporation

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The potential superstock of the week is United Community Financial Corporation (UCFC). It is a diversified financial services company operating Home Savings Bank and Home Savings Insurance Group.





UCFC is involved in commercial, consumer banking, residential mortgage, wealth management and insurance capabilities. It has offices in Cleveland, Akron/Canton, Youngstown, Columbus,
Pittsburgh and Morgantown markets:
  • 35 branch locations in Ohio and Pennsylvania
  • 12 mortgage loan production offices in Ohio, Pennsylvania and West Virginia

Technical


UCFC has been trading in a relatively tight range between $8 and $10 since the start of 2017. On a nearer term, UCFC was trading in an ascending triangle since September 2017.

Last week, price broke out above the range/triangle due to positive earnings release. The volume for the week was 465k shares, about 1.27 times its average trading volume.

Fundamentals


UCFC is a very consistent company delivering EPS growths. Including the most recent quarter, ULBI recorded 15 consecutive quarters of year-on-year EPS growth (including flat quarters). 

Expansion of Treasury Management and Wealth Teams

In the fourth quarter of FY2017, UCFC expanded its treasury management teams to have TM sales persons covering their major commercial markets. The strategy has paid off for UCFC as in the first quarter, UCFC brought in 40 new commercial deposit relationships and on the asset management front, they are up 30% over the first quarter of 2017 on assets under administration closing in $675 million.

UCFC has identified this as a main catalyst for their growth.

Successful Integration of PB&T

This is a dated catalyst as UCFC acquired OLCB in early 2017 but I believe the effects can continue till present day. On January 31, 2017, United Community completed its acquisition of OLCB.  Immediately following the acquisition of OLCB, Home Savings was merged into PB&T, and PB&T changed its name to “Home Savings Bank.”

OLCB's commercial lending expertise provides opportunity for accelerated expansion of the commercial lending platform. Indeed in the latest quarter, strong commercial loan growth in excess of 6% was a key earnings driver.

Matrices
- Big float of 48 million shares with a average daily trading volume of 70000 shares. The float is thus about 685 times its average trading volume. The chance of a spike in price is close to zero.
o UCFC is trading at 16.5 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • Financial Sector: The financial sector is not a superstock sector. Usually I will not shortlist banking stocks as potential superstocks. However, the treasury management team expansion is a strong catalyst that can boost the growth of the company.
  • Interest Rate Risk: While UCFC acknowledged that they are able to absorb each Fed scenario with no meaningful impact to their financial performance, they acknowledge that there is a moderate risk around the residential production income if longer-term rates grow in an accelerated pace.


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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.