BB&T, Fifth Third Boosted by Citigroup

NEW YORK (TheStreet) -- Citigroup upgraded regional banks BB&T (BBT Quote) and Fifth Third Bancorp (FITB Quote) on Tuesday, citing a combination of valuation and optimistic earnings expectations.

Analyst Keith Horowitz lifted his assessment of both BB&T and Fifth Third to a buy rating from hold, while reiterating a buy rating on SunTrust (STI Quote), and affirming Bank of America(BAC Quote) as the firm's top pick among the large-cap banks. The call was part of a valuation analysis of the banking sector.

"Given the number of variables in flux in the middle of a credit cycle, it is challenging to determine where relative value lies in the group," the note says. "We believe the starting point is always the relationship between expected long-term returns and price-to-book, but mid-credit cycle investors must also consider: the duration one must wait to reach 'normal' earnings and likelihood of additional dilution to book value due to insufficient capital."

Based on estimates of how long it will take for banks to return to so-called normalized earnings and the analysts' estimates of total cumulative losses, the firm determined BB&T, Bank of America, Fifth Third and SunTrust offer the best value in the group. It listed KeyCorp.(KEY Quote), Regions Financial(RF Quote), and Zions Bancorp(ZION Quote) as its "most extended stocks" in the group with Zions designated as the firm's top sell idea.

Fifth Third's stock is stock is "inexpensive" relative to its long-term earnings power, remaining credit losses, and strong capital position and reserve levels, Horowitz writes in a separate note specific to the Cincinnati company. He raised his 12-month stock price target on Fifth Third shares by $2 to $13.