Sandy Spring Bancorp: (SASR $35.62): “Sandy
Springs Forward”
By: Matthew Prinske, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position.
This article was written by myself, and it expresses my own opinions. I am not
receiving compensation for it and I have no business relationship with any
company whose stock is mentioned in this article.
Summary
• Sandy Spring Bancorp. (NASDAQ:SASR) operates as
a community bank in the greater Washington D.C. area, with branches to the North
and South in Maryland and Virginia.
Sandy Spring profits off the spread between the interest they pay for deposits,
and the interest they receive on loans.
• Sandy Spring recently acquired Revere Bank in September of 2019. The purchase brought Sandy Spring to over $11
billion in total assets, leaping over the $10 billion dollar benchmark of
further regulation.
• SASR increased dividends up to 30 cents, and increase of
7%. The stock has now become a bit of a
dividend play to some investors, as the stock is currently yielding 3.4%.
• SASR is specifically impacted by the growth in the regional
economy. In the past Washington D.C. has been considered to be resistant to
recession, due to all of the government jobs in the area.
Key points:
The original driver behind the purchase of this stock was the
growth in the Crystal City and Washington D.C. markets. This is beginning to play out as Amazon HQ2
is set to break ground in 2020, and will be under construction for 3 years
following that. The increased growth
into the market will set Sandy spring up to have a platform of sustained growth
in their regional market. By adding to
their market share through mergers and acquisitions, Sandy Spring has been able
to gain an even larger footprint in a growing market. Now that Sandy Spring has passed the $10
Billion threshold there is no more reason to hamper growth in order to protect
margins, SASR can rev-up growth to the maximum extent.
One of the largest risks for Sandy Spring was their integration
with Washington First Bank. This risk
did not materialize as the synergies with Washington First were implemented
smoothly, and no major issues came from the merger. However the risk now turns to the
implementation of the Revere Bank acquisition.
So long as Sandy spring can integrate Revere as they did Washington
First, Sandy Spring will be well positioned to gain off local growth.
What has the stock done lately?
After concerns over the acquisition of Revere Bank in September
the stock traded down 8.5%, which has rebounded after Sandy Spring broke
through the $10 Billion benchmark. The
stock opened Tuesday November 5th at its 30 day high.
1 Month Stock Chart
Source: Factset
Past Year Performance:
1 Year Stock Chart
Source: Factset
SASR stock price hit its 52 week low back in March, bottoming out
at $29.83. The stock is trading up over
20% since this time. The year to date
return for Sandy Spring is nearly 13% and is up 5.5% since the AIM fund
purchased the stock in February.
My Takeaway:
Sandy
Spring’s investment thesis of regional growth has been playing out over the
past year. Amazon is moving forward with
HQ2 in Crystal City, a move that came under questioning when New York backed
out on their split of Amazon’s new headquarters. Sandy Spring was not afraid of continued
acquisitions as they blew past the regulation benchmark in total assets and
acquired Revere Bank. As Sandy spring
continues to grow their footprint, they can begin to milk their cash cow in
Crystal City. The original investment target of $40.49 dollars remains
reasonable, and the stock should be re-evaluated at each large step in amazon’s
HQ2 process.
