On Jun 3, 2013, we reiterated our long-term recommendation on
SunTrust Banks, Inc
) at Neutral based on its capital deployment activities,
acquisitions and cost cutting initiatives as well as
better-than-expected first-quarter results. However, we remain
concerned about the company's exposure to risky assets, limited
margin growth and continued regulatory pressures.
Why the Neutral Stance?
SunTrust's first-quarter 2013 earnings came in at 63 cents per
share, marginally surpassing the Zacks Consensus Estimate of 61
cents. Better-than-expected earnings were primarily driven by
lower operating expenses, partially offset by a reduction in the
top line. Moreover, stable asset quality and capital ratios along
with an improved deposit balance were the tailwinds for the
The Zacks Consensus Estimate for 2013 remained stable at $2.71
over the last 30 days. However, for 2014, the Zacks Consensus
Estimate went down by 0.7% to $2.93 per share over the same time
frame. Hence, the company 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
announced a dividend hike of 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, continuous deposit pricing pressure, rising
costs and fee restrictions are expected to hinder SunTrust's
profitability in the near term. 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 Banks to consider
Some better performing banks include
Enterprise Financial Services Corp
Old Second Bancorp Inc
First Interstate Bancsystem Inc
). All these carry a Zacks Rank #1 (Strong Buy).
ENTERPRISE FINL (EFSC): Free Stock Analysis
FIRST INTST MT (FIBK): Free Stock Analysis
OLD SECOND BCP (OSBC): Free Stock Analysis
SUNTRUST BKS (STI): Free Stock Analysis
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