On Sep 26, 2013, we downgraded our long-term recommendation on
Regions Financial Corp.
) to Neutral from Outperform based on reducing non-interest
income. Moreover, the company's second-quarter 2013 earnings from
continuing operations of 21 cents per share were in line with the
Zacks Consensus Estimate and compared unfavorably with the
Though Regions is taking initiatives to increase revenue,
non-interest income has seen a declining trend over the last four
years. Notably, the income declined 3.2% year over year for the
six months ended Jun 30, 2013. The continuation of such a trend
will pose a risk for the top-line growth of the company.
We are also concerned about regulatory issues, which are expected
to pose as headwinds for the company's profitability going
forward. Such regulations are likely to reduce fee income growth
prospects, increase compliance costs and subject the company to a
number of restrictions.
Despite the macro pressure, Regions' credit quality continues to
normalize. In spite of the slow and uneven pace of the economic
recovery, Regions experienced significant improvement in both
2011 and 2012 and thereafter. Further, we are impressed to see
the overall improving trend in delinquencies rates and net
charge-offs. This trend is expected to continue, thereby
providing room to drive future earnings.
For Regions, the Zacks Consensus Estimate for 2013 dipped 1.2% to
84 cents per share, over the last 60 days. However, for 2014, the
Zacks Consensus Estimate remained stable at 89 cents per share,
over the same time frame. Hence, Regions carries a Zacks Rank #3
Other Major Banks to Consider
Some Southeast banks that are worth considering include
SY Bancorp Inc.
Middleburg Financial Corporation
Simmons First National Corporation
). All the 3 banks carry a Zacks Rank #1 (Strong Buy).
MIDDLEBURG FINL (MBRG): Free Stock Analysis
REGIONS FINL CP (RF): Free Stock Analysis
SIMMONS FIRST A (SFNC): Free Stock Analysis
S Y BANCORP INC (SYBT): Free Stock Analysis
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