Shares of Fifth Third Bancorp (FITB) are up 23% in 2012 but it still trades at a 10% discount to peers on 2013 earnings, according to O'Connor.
This is despite the fact that the bank has consistently above average return on equity, above-average capital with its Basel 3 Tier One ratio at 9% versus 8% for peers, a higher dividend yield of 2.6% and a higher-quality earnings stream , the analyst notes.
The Fed recently approved a 25% increase to its dividend after denying it earlier this year. It also received permission to buy back $ 600 million in stock, which was more than what analysts were expecting.The potential upside to 2013 earnings from the recently approved share buybacks has not been fully reflected in consensus, according to O'Connor. A stronger second half from better-than-expected mortgage performance could also serve as a catalyst. The analyst expects the bank to report an earnings per share of 38 cents in the third quarter in line with consensus. Fifth Third reports on Oct.18.
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