Jefferies analyst Ken Usdin reiterated his "Buy" rating for SunTrust, while raising his price target for the shares by a dollar to $29, viewing the "Coke sale and balance sheet derisking as a modest positive as it eliminates the mortgage repurchase overhang and creates a cleaner earnings run-rate for '13."
Usdin raised his 2013 EPS estimate for SunTrust by a dime, to $2.75.
Regarding the transfer of loans to held-for-sale, the analyst said "we assume that $500mm-$700mm of the $3B in loans are nonperforming, with the remainder being government guaranteed lending."
Usdin also said that SunTrust's announced actions would be "slightly dilutive to tangible book" value and its Basel III Tier 1 common equity ratio, with tangible book value moving "$0.75-$1.00 lower given that gains from the Coke transaction already showed up in accumulated other comprehensive income," and the estimated Basel III Tier 1 ratio declining to 7.9% from 8.0% in June.
BMO Capital Markets analyst Lana Chan upgraded SunTrust to "Outperform," from "Market Perform," while raising her price target for the shares to $35 from $26, saying that "we acknowledge that we missed the 50% move up in the stock YTD; however, STI's valuation remains one of the cheapest among the regional banks."
Chan raised her 2013 EPS estimate for SunTrust to $3.00 from $2.65, "driven mainly by lower than anticipated mortgage repurchase costs."
The analyst said her price target was "based on a target [price-to-tangible-book] multiple of 1.2x our year-end 2013 tangible book value estimate of roughly $29 per share," adding that "the multiple should expand to be in line with peers given an improved outlook for its [return on tangible common equity] of nearly 11% (in line with the regional bank group average)."
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Written by Philip van Doorn in Jupiter, Fla.