We have reiterated our neutral recommendation on
Fifth Third Bancorp
), based on its fundamentals in the midst of the current operating
environment and the recent share buybacks with the gains from the
initial public offering (IPO) of
First Quarter Results
Aided by gains from Vantiv Inc.'s IPO, Fifth Third Bancorp
posted improved earnings in the first quarter of 2012. The company
reported earnings of 45 cents per share, ahead of 33 cents per
share earned in the prior quarter and 10 cents per share in the
Results include the positive impact of 9 cents per share from
Vantiv. Excluding that, the company earned 36 cents per share in
the reported quarter, which missed the Zacks Consensus Estimate by
Quarterly results at Fifth Third reflect a better-than-expected
revenue figure backed by improved non-interest income. Expenses
showed a modest decline. However, a drop in net interest income
coupled with higher loan loss provisions were the downsides.
Fifth Third Bancorp recently bought back shares worth $75
million, according to its filing with the Securities and Exchange
Commission. The share buybacks were made as per the regulatory
approval that the company received in March and were supported by
the realized gains from the Vantiv IPO.
Shares were bought back pursuant to an accelerated share
repurchase transaction agreement that the company entered into with
Goldman, Sachs & Co.
) in April. A total of around 5.5 million shares were bought back
at an average price of $13.71.
The share repurchases were made as part of Fifth Third's
previously announced 30 million share buyback program. The
company now has the remaining authorization to buyback around 14
million shares under this program.
Notably, according to the 2012 stress test results, Fifth Third
was allowed to make this share buyback from the gains of the Vantiv
IPO, formerly Fifth Third Processing Solutions, LLC. Moreover, the
company got the permission to continue its quarterly common
dividend at 8 cents per share and redeem up to $1.4 billion in
certain trust preferred securities.
We believe that with a diversified traditional banking platform,
Fifth Third remains well poised to benefit from a recovering
economy. Its traditional commercial banking franchise and solid
market share in key markets will bode well going forward.
While an improving credit quality is encouraging, a low interest
rate environment, regulatory issues and competitive pressures are
the headwinds for the stock.
Moreover, the Fed's objection to a number of elements in Fifth
Third's capital plan, including increase in its quarterly common
dividend, puts the company on the back foot and weakens its
competitive position to some extent.
The risk-reward profile for Fifth Third Bancorp is somewhat
balanced and hence we have reaffirmed our Neutral recommendation on
Fifth Third shares currently retain a Zacks #3 Rank, which
translates to a short-term Hold rating.
FIFTH THIRD BK (FITB): Free Stock Analysis
GOLDMAN SACHS (GS): Free Stock Analysis Report
VANTIV INC-A (VNTV): Free Stock Analysis Report
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