Markets

BB&T (BBT) Up 5.9% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for BB&T CorporationBBT . Shares have added about 5.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

BB&T's Q4 Earnings & Revenues In Line with Estimates

A notable rise in the top line drove BB&T's fourth-quarter 2016 adjusted earnings of $0.73 per share. This was in line with the Zacks Consensus Estimate.

An improved net interest income and non-interest income as well as stable provisions supported the results. Further, loans and deposits witnessed decent growth. However, higher operating expenses remained a headwind, while credit quality was a mixed bag.

Results excluded certain merger-related and restructuring charges. After considering these, net income available to common shareholders was $592 million or $0.72 per share, compared with $502 million or $0.64 per share in the prior-year quarter.

For 2016, earnings of $2.77 per share lagged the Zacks Consensus Estimate of $2.80. However, it was up 8.2% year over year. Net income available to common shareholders was $2.3 billion, up 16.7% from 2015.

Revenues Improve, Expenses Up

Total revenue (taxable equivalent basis) for the quarter amounted to $2.77 billion, up 8.3% year over year. The figure was in line with the Zacks Consensus Estimate.

For 2016, total revenue (taxable equivalent basis) was up 12.3% from the prior year to $11 billion. The figure was marginally above the Zacks Consensus Estimate of $10.9 billion.

Tax-equivalent net interest income rose 4.2% from the prior-year quarter to $1.61 billion. However, net interest margin fell 3 basis points (bps) from the prior-year quarter to 3.32%.

Non-interest income jumped 14.5% year over year to $1.16 billion. Rise in all fee income components except income from bank-owned life insurance led to the growth.

Non-interest expense of $1.67 billion was up 4.4% from the year-ago quarter. This increase was driven by a rise in all cost components other than loan-related expense, professional services, foreclosed property expense and merger-related and restructuring charges.

BB&T's adjusted efficiency ratio came in at 59.5%, up from 59.2% in the prior-year quarter. A rise in efficiency ratio indicates a fall in profitability.

As of Dec 31, 2016, average deposits inched up 0.4% from the prior month to $160.1 billion. Further, average loans and leases totaled $142.3 billion, up 0.8% sequentially.

Credit Quality: A Mixed Bag

As of Dec 31, 2016, total non-performing assets (NPAs) rose 14.2% year over year to $813 million. As a percentage of total assets, NPAs came in at 0.37%, up 3 bps year over year. Also, net charge-offs were 0.42% of average loans and leases, up 4 bps year over year.

However, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, down 3 bps year over year. Further, provision for credit losses remained stable at $129 million on a year-over-year basis.

Improved Profitability & Capital Ratios

As of Dec 31, 2016, return on average assets was 1.16%, up from 1.03% in the prior-year quarter. Return on average common equity rose to 8.75% from 8.06% as of Dec 31, 2015.

As of Dec 31, 2016, Tier 1 risk-based capital ratio was 12.0%, compared with 11.8% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.2% as of Dec 31, 2016.

Share Repurchases

During the reported quarter, BB&T repurchased 7.5 million shares through both open-market purchases and an accelerated share repurchase program.

First-Quarter 2017 Guidance

The company restructured $2.9 billion of federal home loan bank (FHLB) advances in January. Given this, management projects earnings growth to exceed balance sheet growth. Also, driven by the expected growth in capital, the company plans to significantly increase 2017 capital plan payout (subject to regulatory approval), which will support faster earnings growth.

Management projects core NIM to increase 8-10 bps, driven by the impact of the FHLB restructure, rate hike in Dec 2016, favorable asset mix and funding cost, and mix changes. Also, GAAP NIM is projected to rise 10-12 bps, on the basis on above-mentioned factors along with the expected absence of duration adjustments, partially offset by a reduction in purchase accounting accretion.

Further, earning assets are expected to be up marginally on a sequential basis as securities balances remain stable. Also, a robust growth in NII is expected, given the improved margin assumption.

Total non-interest income is projected to be relatively flat from the prior quarter as seasonally stronger insurance is projected to offset by seasonal decline in service charges as well as fall in mortgage banking and investment banking income.

Excluding merger-related and restructuring charges and the Federal Home Loan Bank restructuring charge, expenses are likely to be lower than $1.7 billion and includes seasonal rise in personnel costs.

Management expects average loan to be flat or grow marginally on a sequential basis, owing to seasonality.

In respect of the net charge-offs (NCOs), management projects it to be in the range of 35-45 bps (on the assumption that there is no deterioration in the economy), while NPA levels are expected to remain stable on a sequential basis. Also, loan loss provisions are expected to match NCOs in addition to providing for incremental loan growth.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to six lower. While looking back an additional 30 days, we can see even more downward momentum. In the past month, the consensus estimate has shifted by -9.68 % due to these changes.

BB&T Corporation Price and Consensus

BB&T Corporation Price and Consensus | BB&T Corporation Quote

VGM Scores

At this time, BB&T's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BB&T Corporation (BBT): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Earnings

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More