Astoria Financial's Shares Ready to Rebound After 40% 2011 Drop: Analyst

On the surface, Astoria Financial Corp. would seem like an odd selection as a top stock pick for 2012. The Lake Success, N.Y., thrift company has shed nearly one-quarter of its assets over the last three years, its shares lost 40% of their value in 2011 and, of the 17 analysts who follow the company, only three rate the stock a "buy."

None of that seems to bother Sandler O'Neill & Partners analyst Mark Fitzgibbon, who has named Astoria as his top stock pick — for the second straight year.

In a research report published Friday, Fitzgibbon cited several factors in explaining why he believes the stock, which ended 2011 trading $8.49, will surpass $11 in 2012.

The $17 billion-asset Astoria has been bulking up in multi-family lending — it currently has about $1 billion of multi-family loans in its pipeline — and that expansion should help drive earnings, Fitzgibbon wrote.

Fitzgibbon also believes that takeover speculation could also fuel a run-up in Astoria's stock. In an interview Friday, Fitzgibbon said Astoria's branch network "is the crown jewel" on Long Island and would be highly attractive to any larger bank looking to expand in that market. Astoria has 85 branches in the region and an average of $133 million of deposits in each.

He also noted that the average age among Astoria's board members is 65 — an age when many investors are looking to cash out — and that insiders own 20% of the company's shares.

Fitzgibbon remains bullish on Astoria despite the letdown in 2011. He believes the steep drop in the stock last year was related to the woes of rival Hudson City Bancorp, which took massive restructuring charges after paying off higher-cost borrowings it was using to fund loans.

Fitzgibbon said that while Astoria has relied more on deposits and less on borrowings to fund its loans, investors "have painted it with the same brush" as Hudson City.   

"The complexion of their balance sheets is very different, but the markets didn't distinguish between them in 2011," Fitzgibbon said.

In the first week of trading, at least, Fitzgibbon's pick is looking like a good one. As of midday Friday, Astoria's shares were already up nearly 9% year to date, to $9.23.