We are going to add 200 shares to SunTrust (STI:NYSE) at
about $38.15 and 100 shares of American Express (AXP:NYSE)
at about $89.07.
STI is below our cost basis and we’ll continue to build out
the position. STI is down 10% from highs, even though the
company posted a solid 2Q and among the highest in loan
growth at 7.7%. Core earnings beat consensus by 3 cents a
share and increased 19% y/y, core revenues rose 3% y/y and
fee revenues rose faster than expected, which shows the
expansion diversification strategy is leading to market
share gains. Within loan growth, the components were strong.
Commercial and industrial grew 10%, commercial real estate
rose 42% and consumer posted 8% growth.
The company continued to improve its efficiency ratio and at
63.5% it was 150 bps better than 1Q and 200 bps better than
last year. Credit quality improved with NPAs down 3% y/y and
stand at just 0.35% of total loans. Capital levels remain
strong and the balance sheet and cash flow solid. The issue
is interest rates and the negative implications to NIM
(profitability), which is plaguing the entire industry and
is not company specific. We think the concerns are overdone,
especially with the share price correction, and we will
continue to add to improve our cost basis, staying patient
for the long term given the above-average loan growth
results and significant expense management yet to come.
On AXP, shares are down 9% from recent highs, even after the
company posted a strong 2Q as well. The positives to the
quarter were that earnings rose 13% y/y, revenues gained 5%
and return on tangible equity accelerated to 35.8% (vs. the
35% level seen in the March quarter). Total loans rose 5.1%,
with 6% in the U.S. (87% of total) and 2% international (12
% of total), and accelerated from the 4Q average loan growth
of 3%. Card spending was impressive, up 9% y/y, driven by a
3% acceleration in both the U.S. and internationally. Both
regions posted 9% card-spend growth. In the U.S., U.S. small
business channel volumes rose 10% and corporate increased 8%
and both saw a q/q acceleration. Spending per average card
rose 2.8% vs. 1.4% in 1Q. Card receivable growth rose 4.1%,
which was broad-based and not because they loosened credit
standards. Credit trends were solid with charge-offs down to
1.6% and 40 bps below year-ago levels and delinquencies fell
to 1% and are close to record levels. Shares are down
because marketing and promotional/rewards spending rose more
than expected in the quarter, up 25% y/y and 11% y/y
The company has had a history of heavy investment spending
and really wanted more operating leverage to the bottom
line. We believe these efforts will bear fruit and lead to
both top- and bottom-line acceleration in the back half of
the year. Plus, total expenses in the quarter were tame at
up 2%. With strong capital ratios and a strong balance
sheet, the company will buy back $2.3 billion worth of stock
in 2014 and has authorization to do another $1 billion in 1Q
2015, a 90% payout ratio vs. the typical historical average
of 50%. We expect a catch up in the stock price of this
high-quality financial story and will further increase our
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long AXP and STI.
Vale took a step towards extending the world's largest iron ore mine.
We're adding to Eaton and Bank of America below our cost basis.
Given the geopolitical news and the market's day-to-day swings, we are holding more cash than usual.
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