Bank of America to Reap Mortgage Windfall: Analyst

Shares of SunTrust closed at $25.45 Wednesday, returning 31% year-to-date, following a 40% decline during 2011.

The shares trade for 1.1 times tangible book value, and for 10 times the consensus 2012 EPS estimate of $2.61. The consensus 2012 EPS estimate is two dollars.

SunTrust on Aug. 22 announced that the Federal Reserve had approved the company's revised capital plan, although the company "did not request an increase in its common stock dividend or the repurchase of shares of its common stock in 2012." The company's initial 2012 capital plan was partially rejected by the Fed back in March, with the regulator agreeing to the company's plan to redeem trust preferred shares, but objecting to any common share buybacks or an increase in the dividend on common shares.

Juneja on Thursday upgraded SunTrust to an "Overweight" rating from an "Equal Weight" rating, while raising his price target for the shares to $31.50 from $29, "reflecting our increased EPS forecast."

The analyst raised his 2012 earnings estimate for SunTrust by four cents to $2.02, and his 2013 EPS estimate by eight cents to $2.60.

Juneja said that the Atlanta lender "has had losses and expense drag more akin to the money center banks from its mortgage related businesses along many fronts," and that the "drag from credit/servicing related expenses has kept SunTrust's efficiency ratio very high and offset the benefit from its cost restructuring program."

The analyst said that SunTrust's "valuation is attractive at 1.0x tangible book, which is below peers, and that "2013 does not represent normalized earnings and the large drag from housing related costs should be a greater benefit to earnings than peers beyond 2013."

STI data by YCharts

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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.

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