Is This a Value Stock or a Value Trap?
Berkshire Hills Bancorp (NYSE: BHLB) is one of the few banks that did not emerge from the brunt of the pandemic in better shape than it was in before. Not only does Berkshire Hills' stock remain below pre-pandemic levels, but the bank has had to deal with a lot of turnover among management and is now in rebuild mode. With the stock trading at the lower end of the sector, especially for a bank of its size ($12.4 billion in assets), investors considering Berkshire Hills are now looking at whether the depressed valuation indicates a value stock -- or a value trap. Let's take a look.
Berkshire Hills struggled in 2020, with its stock falling below $10 per share at one point that August. The bank took a significant goodwill impairment that substantially cut its tangible book value (TBV). TBV is a bank's equity minus goodwill and intangible assets, and shows what a bank would be worth if it were to be immediately liquidated. Banks trade relative to their TBVs, so it's not good to see TBV take a significant hit. Berkshire Hills' board of directors also took heat last year from one of its shareholders, HoldCo Asset Management, after the bank did not repurchase shares when it traded below TBV, or consider a sale of the bank before essentially hiring a new management team.
But since then, the bank has struck a cooperation agreement with HoldCo and added one of its co-founders to its board; begun repurchasing shares; and launched a new strategic plan to turn the bank around. Called Berkshire's Exciting Strategic Transformation (BEST), the plan seeks to have the bank achieve a 10% to 12% return on tangible common equity (ROTCE) within three years. ROTCE is the technical return on the bank's shareholder's equity minus intangible assets and goodwill, and it's a good representation of how much the bank is making on shareholders' investments.
Source Fool.com
