SunTrust Remains Neutral - Analyst Blog
March 20 2013 - 10:10AM
Zacks
On Mar 18, 2013, we reiterated our long-term recommendation on
SunTrust Banks, Inc. (STI) at Neutral based on its
successful expense reduction strategies and restructuring
initiatives as well as better-than-expected fourth-quarter
earnings. However, increased mortgage repurchase demand and deposit
pricing pressure along with stringent regulatory restrictions
remain the causes of concern.
Why Neutral?
SunTrust’s fourth-quarter 2012 earnings came in at 65 cents,
surpassing the Zacks Consensus Estimate of 61 cents.
Better-than-expected results were primarily driven by growth in top
line and reduced operating expenses. Further, stable asset quality,
capital ratios as well as improvement in loan and deposit balances
were the tailwinds.
Following its fourth-quarter results, the Zacks Consensus Estimate
for 2013 slipped 0.7% to $2.72 per share over the last 60 days. The
Zacks Consensus Estimate for 2014 also fell 1.65% to $2.98 per
share over the same time frame. Hence, SunTrust currently has a
Zacks Rank #3 (Hold).
With the approval of SunTrust’s capital plan by the Federal
Reserve, the company authorized a new share repurchase program
under which it plans to buyback $200 million shares between
second-quarter 2013 and first-quarter 2014. Further, SunTrust plans
to hike its dividend by 100% to 10 cents per share.
Moreover, SunTrust’s restructuring initiatives to fortify its
balance sheet, improve credit quality and enhance revenue
generating capacity through several small acquisitions have been
the driving forces for its growth.
On the other hand, SunTrust’s exposure to risky assets, limited
margin growth and continued regulatory pressures remain looming
concerns. Moreover, a sluggish economic recovery along with a
persistent low-interest rate environment and overall industry
challenges might prove to be impediments for SunTrust to
considerably improve its financials going forward.
Other Major Banks to Consider
While we prefer SunTrust, other major banks worth a look include
BankUnited, Inc. (BKU), State Street
Corporation (STT) and Fifth Third Bancorp
(FITB), all of which carry a Zacks Rank #2 (Buy).
BANKUNITED INC (BKU): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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