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10 Buy Rated Regional Bank Stocks (Update 3)

8. Trustmark Corp.

Shares of Trustmark Corp. (TRMK - Get Report) of Jackson, Miss., closed at $25.65 Monday, returning 6% year-to-date ,with a five-year total return of 7%. Based on a quarterly payout of 23 cents, the shares have a dividend yield of 3.59%.

The stock is rated an "A-minus" by TheStreet Ratings.

The company had $9.7 billion in total assets as of Dec. 31, with branch operations in Florida, Mississippi, Tennessee and Texas.

Trustmark on Tuesday reported fourth-quarter net income to common shareholders of $24.3 million, or 38 cents a share, declining from $27.0 million, or 42 cents a share, in the third quarter, and $25.2 million, or 39 cents a share, in the fourth quarter of 2010.

The fourth-quarter earnings decline mainly resulted from a $4.2 million write-down on loans that were covered by FDIC loss-sharing agreements, "as a result of loan payoffs and improved cash flow projections and lower loss expectations for loan pools." The loans were acquired when the company purchased the failed Heritage Banking Group of Carthage, Miss., in April of last year.

Trustmark's fourth-quarter ROA was 1.01% according to SNL, and the ROA has ranged as high as 1.31% over the past five quarters.

Morgan Keegan analyst Ebrahim Poonwala on Thursday downgraded Trustmark to a "Market Perform" rating from "Outperform," saying the stock's "near term upside is likely to be limited given the macro challenges that TRMK and the banking industry face."

Poonwala lowered his 2012 EPS estimate to $1.57 from $1.60 and his 2013 estimate to $1.66 from $1.70, "with the downward revisions driven by lower fee revenues and higher overhead costs." The analyst left his price target for Trustmark at $25, and said that although the company is "well positioned to benefit from an ongoing US economic recovery," revenue and earnings growth would be challenging, "absent a material pick-up in industry-wide loan growth and a higher interest rate environment."

KBW analyst Brian Klock on Thursday also downgraded Trustmark -- to "Underperform" from "Market Perform" -- because "the core earnings power has weakened and could remain pressured this year, which should lead to price multiple contraction," and also because the company's "shares are already fully valued trading at a 13% 2013 P/E premium to peers and 21% premium to all US regionals."

Klock added that "the company's excess capital is trapped" by a high dividend payout ratio and a high price multiple to tangible book value, "which makes share buybacks inefficient/dilutive."

The shares trade for 1.8 times tangible book value, according to SNL Financial, and for 16 times the consensus 2012 EPS estimate of $1.60, among analysts polled by FactSet.

Interested in more on Trustmark? See TheStreet Ratings' report card for this stock.

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