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SunTrust Cleans House (Update 1)

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)."

STI Chart STI data by YCharts

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

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

>Contact by Email.

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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