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5 Long-Term Bank Stock Picks From Jefferies (Update 1)

4. SunTrust
Shares of SunTrust of Atlanta closed at $24.17 Friday, returning 37% year-to-date, following last year's 40% decline.

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The shares trade for nine times the consensus 2013 EPS estimate of $2.66.

After the Federal Reserve rejected the company's capital plan, SunTrust said in a statement on March 13 that it would "not be increasing its return of capital to shareholders at this time," and that it would maintain its current quarterly dividend of five cents a share, and "redeem certain trust preferred securities at such time as their governing documents permit, including when these securities are no longer expected to qualify as Tier 1 capital."

Ken Usdin on Monday raised his price target for SunTrust by two dollars to $27, while raising his 2012 EPS estimate to $1.60 from $1.05, and lowering his 2013 estimate to $2.60 from $2.70, saying that with SunTrust preannouncing first quarter earnings of more than 29 cents a share, first-quarter expectations are already reflected in the stock price.

The analyst added that "while details about specific line items are scarce, we believe strong mortgage production, progress on expense initiatives, and lower-than-expected environmental expenses are the primary drivers of better-than-expected 1Q results."

SunTrust is scheduled to announce its first-quarter results on April 23. The consensus first-quarter EPS estimate is 31 cents, following earnings of 28 cents a share the previous quarter and eight cents a share during the first quarter of 2011, when the company repaid bailout funds owed to the government for assistance received through the Troubled Assets Relief Program, or TARP. Operating earnings during the first quarter of 2011 were 22 cents a share.

During the fourth quarter, SunTrust saw a 30% sequential decline in noninterest income to $723 million, with mortgage production related losses of $62 million, compared to mortgage production income of $41 million in the third quarter. Mortgage servicing income also declined, to $22 million in the fourth quarter, from $68 million the previous quarter. These items reflected an increased "mortgage repurchase provision, as well as a mortgage servicing rights valuation adjustment arising from anticipated refinance activity from the HARP 2.0 program."

The company's fourth-quarter earnings to common shareholders of $152 million reflected a $143 million reserve release.

Usdin also expects SunTrust to post first-quarter earnings of 31 cents a share.

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

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