Regions: Financial Winner

NEW YORK (TheStreet) -- Regions Financial (RF) was the winner among the largest U.S. financial names on Thursday, with shares rising over 2% to close at $6.33.

The broad indexes jumped in the final hour of trading, after Reuters reported that the G-20 nations were ready for coordinated action in case of market turmoil following this weekend's elections in Greece.

Back home, the U.S. Labor Department reported that for the week ended June 9, initial unemployment claims increased to 386,000 from the previous week's upwardly revised figure of 380,000. Economists surveyed by Briefing.com expected jobless claims for the week ended June 9 to come in at 375,000. The four-week moving average for jobless claims was 382,000, increasing from 378,500.

The Labor Department also reported that the consumer price index fell 0.3% in May, matching economists' expectations, and the 12-month increase was 1.7%, which was below the Federal Reserve's targeted annual inflation rate of 2.0%. The CPI figure "has been declining steadily since its 3.9 percent recent peak in September 2011," which the Labor Department said "has been driven mostly by the energy index, which decreased 3.9 percent over the last 12 months."

The core price index -- which excludes food and energy prices -- rose 0.2% during May, which was the same as in the previous month, and the annual increase was 2.3%, led by increases in prices for apparel, medical care and used cars and trucks.

Before the market's euphoria about the possibility of very strong action to save the euro, one Wall Street veteran said with the "the dollar weakening, low inflation and rising unemployment, it would make sense for investors to expect another move from the Federal Reserve."

The KBW Bank Index (I:BKX) rose over 1% to close at 44.04, with all 24 index components showing gains, except for State Street, which was down two cents to close at $43.30.

Shares of Regions Financial have now returned 48% year-to-date, after dropping 38% during 2011.

The shares trade for eight times the consensus 2013 EPS estimate of 77 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 61 cents.

After selling its Morgan Keegan brokerage subsidiary and completing a $900 million common share offering during the first quarter, Regions in early April repaid $3.5 billion in government bailout funds received during 2008 through the Troubled Assets Relief Program, or TARP.

Goldman Sachs analyst Ryan Nash late on Wednesday upgraded Regions to a "Buy" rating, with a price target of $8/00, saying that the Birmingham, Ala., lender, along with SunTrust (STI) of Atlanta, were "two interesting ways to gain exposure to this given their concentrations in some of the hardest-hit markets in the Southeast."

The analyst maintained his neutral rating on SunTrust, since the company's mortgage loan "putbacks remain unpredictable," and "outsized margin pressure," with an estimated 27 basis point narrowing of the company's net interest margin this year.

Nash said that "a further recovery in real estate will drive both provisions and environmental costs lower," as Regions and SunTrust spend less on maintaining and marketing repossessed real estate, and set aside less money for loan loss reserves.

The analyst added that "although low rates hurt, RF has offsets as funding benefits and liquidity deployment [are expected to] mitigate asset yield pressure and drive its [net interest margin up by 10 basis points] by YE 2013E."

This is in contrast to the continued industry trend for narrowing net interest margins, as yields on new loans and investments have continued to decline, while funding costs can't go much lower, as the Federal Reserve's target short term rate is a range of 0% to 0.25%.

Nash estimates that Regions Financial will earn 64 cents a share this year, followed by EPS of 80 cents in 2013.

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

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.