5 SunTrust
Shares of SunTrust of Atlanta closed at $28.26 Friday, returning 61 percent year-to-date, following a 40-percent decline during 2011.
The shares trade for 1.2 times tangible book value, and for 10.1 times the consensus 2013 EPS estimate of $2.81. The consensus 2012 EPS estimate is $3.31.
Based on a quarterly payout of five cents, the shares have a dividend yield of 0.71 percent.
For the 12-month period ended June 30, the company’s ROA was 0.46 percent, and its ROE was 4.00 percent.
The consensus among analysts is for SunTrust to report a third-quarter profit of $1.83 cents (including several extraordinary items), increasing from 50 cents the previous quarter, and 39 cents a year earlier.
SunTrust on Sept. 6 announced a number of steps to optimize its balance sheet, in light of new regulatory and take advantage of its long-term investment in Coca-Cola shares.
The company accelerated two forward purchase agreements to sell its Coke shares, while also transferring $3 billion in portfolio loans to held-for-sale, and said that the moves, along with other actions, would lead to a pre-tax third-quarter gain of $1.9 billion, or $1.2 billion after taxes.
Juneja rates SunTrust “overweight,” and on Friday raised his price target for the shares to $33.50 from $31.50, and called the company “one of the biggest beneficiaries from housing market recovery,” as it “has had an unusually large drag from mortgage related issues on several fronts versus peers.”
“As the housing market recovers, SunTrust’s earnings should show strong benefit,” Juneja said. “In addition, we expect management to remain focused on lowering expenses and improving [its] efficiency ratio.”
The analyst added that the company’s “valuation is also attractive as STI trades below regional peers based on tangible book multiple.”
4. Fifth Third Bancorp
Shares of Fifth Third Bancorp of Cincinnati closed at $15.51 Friday, returning 24 percent year-to-date, following an 11 percent decline during 2011.
The shares trade for 1.4 times tangible book value, and for 9.8 times the consensus 2013 EPS estimate of $1.58. The consensus 2012 EPS estimate is $1.59.
Based on a quarterly payout of 10 cents, the shares have a dividend yield of 2.58 percent.
Fifth Third’s ROA for the 12-month period ended June 30 was 1.29 percent, while the company's ROE was 11.15 percent.
Analysts polled by Thomson Reuters expect Fifth Third to report third-quarter EPS of 38 cents, declining from 40 cents the previous quarter and also a year earlier.
The company in August announced that the Federal Reserve had approved its revised 2012 capital plan, including an increase in the quarterly dividend to 10 cents a share from eight cents, and “new share repurchase authorization of up to 100 million shares,” including up to $600 million in buybacks through the first quarter of 2013.
KBW analyst David Konrad on Monday downgraded Fifth Third to a “market perform” rating, from “market perform,” while maintaining his price target of $17, saying “we have limited upside to our price target,” and that “although the stock is trading at a modest discount to its peers on 2013 earnings (9.7x versus 11.0x), FITB is trading at a modest premium to its peers on earnings after excluding the benefits of reserve releases in our estimates (11.3x versus 11.1x).”
During the third quarter, “FITB’s stock is up 19 percent compared to 12 percent for large regional bank peers,” Konrad said, adding that “as a result, FITB’s 2013 multiple, excluding reserve release, has improved this quarter from 9.8x to 11.3x, or to a modest premium to peers.”
The analyst also said that “we believe FITB has minimal credit leverage going forward,” meaning minimal reserve releases, and that “given the challenging rate environment and meaningful benefits from liabilities repricing occurring through this quarter, we anticipate NIM pressure may hold back earnings growth in 2013.”
Wells Fargo analyst Matthew Burnell followed suit, downgrading Fifth Third on Tuesday to a “market perform” rating from “outperform,” to reflect “a more evenly matched risk/reward relationship.”
Burnell also said that “commercial loan growth trends, which have been robust through most of this year, are beginning to flag which could have a bigger effect on FITB than peers,” and that the Fed’s approval of the revised capital plan and the associated dividend hike and buyback plan announcement “have now been completed and announced, and appear to be largely incorporated into FITB’s current share price.”
Burnell raised his 2012 EPS estimate by four cents to $1.59, to reflect the share repurchases, while lowering his 2013 EPS estimate by a penny, to $1.64. The analyst also introduced a 2014 EPS estimate of $1.70.
3. PNC Financial Services
Shares of PNC Financial Services of Pittsburgh closed at $63.83, returning 11.5 percent year-to-date, following a 3-percent decline during 2011.
The shares trade for 1.3 times tangible book value, and for 9.3 times the consensus 2013 EPS estimate of $6.83. The consensus 2012 EPS estimate is $5.68.
Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.51 percent.
For the 12 month period ended June 30, PNC’s ROA was 0.92 percent, while the company’s ROE was 6.87 percent.
The consensus among analysts is for PNC to report a third-quarter profit of $1.59, increasing from 98 cents during the second quarter (when the company booked extraordinary charges of 54 cents a share for mortgage putback reserves 16 cents for trust preferred share redemptions an six cents for restructuring), and $1.55, during the third quarter of 2011.
Juneja rates PNC “overweight,” with an $80 price target, saying on Friday that his rating reflects the company’s “attractive valuation and multiple drivers of revenue growth.”
“PNC is expanding its business through recent acquisitions of [National City, at the end of 2008] and RBC’s US bank franchise [during the first quarter] and actively growing fee based businesses including capital markets and treasury management as well as consumer businesses such as credit cards,” he said, adding that the stock “is trading at 1.4x tangible book, a tad above overall regional banks, but should be trading closer to high quality banks given its track record of good revenue growth and conservative risk profile.”
2. Regions Financial
Shares of Regions Financial of Birmingham, Ala., closed at $7.27 Friday, returning 68 percent year-to-date, following last year’s 38-percent decline
The shares trade for 1.1 times tangible book value, and for 9.1 times the consensus 2013 EPS estimate of 80 cents. The consensus 2012 EPS estimate is 71 cents.
For the 12-month period ended June 30, the company’s ROA was 0.13 percent, while its ROE was 1.07 percent.
Analysts polled by Thomson Reuters expect the company to report third-quarter EPS of 80 cents, increasing from 20 cents the previous quarter, and eight cents a year earlier.
Regions went through a major transition during the first half of 2012. During the second quarter, the company redeemed all $3.5 billion in preferred stock held by the government for bailout assistance received in 2008 through the Troubled Assets Relief Program (TARP), after selling its Morgan Keegan subsidiary and raising $900 million in common equity during the first quarter.
The company’s second-quarter net interest margin expanded to 3.16 percent, from 3.09 percent the previous quarter, and 3.07 percent a year earlier. Mosby estimates that the margin will expand by another nine basis points through the end of 2013.
Mosby rates Regions a “buy,” with a $9.25 price target, and said last month that he expected the company to improve its “quarterly earnings run rate to above $0.20 before year-end, pushing potential upside substantially higher.”
1. Capital One Financial
Shares of Capital One Financial of McLean, Va., closed at $56.96, returning 35 percent year-to-date, following a flat return during 2011.
The shares trade for 1.6 times tangible book value, and for 8.2 times the consensus 2013 EPS estimate of $6.94. The consensus 2012 EPS estimate is $6.16.
For the 12-month-period ended June 30, Capital One’s ROA was 1.00 percent, while the company’s ROE was 7.70 percent.
The consensus among analysts is for Capital One to report a third-quarter profit of $1.65, increasing from 16 cents during the second quarter, when the company set aside reserves for the $27 billion U.S. credit card portfolio it acquired from HSBC, and also agreed to pay $210 million in refunds and fines, after entering into a settlement with regulators over the marketing of credit protection products. During the third quarter of 2011, the company earned $1.77 a share.
While Capital One’s acquisitions over the years have pushed the company in different directions, the company’s shoring up of its liquidity with the purchase of ING Direct early this year, followed by the HSBC card purchases, pushes the company further back toward its core competency.
Guggenheim analyst David Darst rates the company a “buy,” with a $67 price target, and said last month that “COF is in a prime competitive position to benefit from a consumer shift to direct banking, given its product set, early adopter customer base, and national brand,” and that his “$7 earnings estimate for 2013 assumes COF generates a 15 percent [return on tangible equity] with a 6.71 percent [net interest margin].
“Given an opportunity to remix the balance sheet and a limited asset growth outlook, we believe COF should have increasing opportunities to return capital to shareholders,” he said.
Oppenheimer Securities analyst Chris Kotowski rates Capital One “outperform,” with a 12 to 18 month price target of $16, and said on Friday that “we made no changes to our COF model this quarter; the last two reported quarters have had lots of moving pieces with both the ING and HSBC card portfolio acquisitions closing,” and that “we expect this quarter to give us a much clearer insight into the new COF since this is the first clean quarter we’ll have.”
—Written by Philip van Doorn for TheStreet.com
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