FITB Fifth Third Bancorp

We are reiterating our Neutral recommendation on Fifth Third Bancorp (FITB) following a detailed analysis of the company fundamentals in light of the current economic environment and regulatory changes.

The company’s third-quarter 2011 earnings of 40 cents per share outpaced the Zacks Consensus Estimate of 33 cents. The results also compare favorably both sequentially and on year-over-year basis.

Quarterly results at Fifth Third reflect a better-than-expected revenue figure backed by net interest income and fee income growth, sequentially. Credit metrics also improved significantly. However, higher operating expenses were on the downside.

Recently, Fifth Third announced that it is likely to record a reduction of $68 million in its fourth-quarter 2011 pre-tax income related to litigations faced by Visa Inc. (V). While fourth-quarter charges are likely to impact the stock price in the near term, we believe that with a diversified traditional banking platform, Fifth Third remains well poised for future growth.

A protracted economic recovery with a low interest rate environment as well as regulatory changes remain a challenge. Yet, we expect the company's proactive efforts to help navigate through the challenge comfortably. Improving credit metrics trend is quite encouraging as well.  Moreover, solid capital levels provide the company with flexibility to go for further capital deployment initiatives.

We believe that the risk-reward profile for Fifth Third is currently balanced and hence, we have reaffirmed our Neutral recommendation on the shares. Fifth Third currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

 
FIFTH THIRD BK (FITB): Free Stock Analysis Report
 
VISA INC-A (V): Free Stock Analysis Report
 
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