Novice Investing - Flagstar See Star

Date: Monday 01st 2008f December 2008 05:10:31 PM

Flagstar See Star - 10/26/2005

By: Novice Investing Staff

Flagstar Bancorp (FBC) tumbled as it reported disappointing earning for the third quarter of 2005. It reported profit of $ 0.15 per share, down from 62 cents per share a year earlier. The company was hurt badly with the rising rate environment. Net interest margin stood at 1.72%, a decrease of 0.26% from third quarter of last year. Net interest margin is the difference between the interest expense incurred from the interest income that the company earns. As you might have known, FBC is in the business of lending money. When rate rises, net interest margin normally take a hit. Flagstar's latest result showed all that.

The federal fund rate stood at 3.75 percent recently. We believe that it will rise further to 4.25 percent by the beginning of 2006. The best way to invest in bank stocks is when rate is at the peak. The peak may come sometime in the middle of 2006. If commodity price along with core inflation keeps rising, interest rate might hit its peak at 5 - 5.5 percent. No, we are not making any predictions here. It is just speculation on our part.

Flagstar is expected to earn $ 1.54 and $ 1.77 for fiscal year 2005 and 2006 respectively. We believe this number will be reduced if the federal fund rate rises to say 5.5 percent. Therefore, now it may not be the right time to buy FBC, yet. The dividend looks tempting at $ 1.00 per share. But if rates keep rising and net interest margin keep dropping, EPS will come in at around $ 1.00- $ 1.20 per share for 2006. The dividend might be less than what shareholders currently have.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Flagstar Bancorp Inc. (FBC) or any other securities.

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