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Buy Big Bank Stocks and Give Regionals a 'Breather': Merrill Lynch (Update 2)

Fifth Third Bancorp


Shares of Fifth Third Bancorp of Cincinnati closed at $15.86 Tuesday, returning 27% year-to-date, following an 11% decline during 2011.

The shares trade for 1.3 times tangible book value, and for 10 times the consensus 2013 EPS estimate of $1.58. The consensus 2012 EPS estimate is $1.61.

Fifth Third pays a quarterly dividend of 10 cents a share, for a yield of 2.52%.

For the 12-month period ended June 30, the company's ROA was 1.29%, while its ROE was 14.01%.

Fifth Third will announce its third-quarter results on Oct. 18, with a consensus EPS estimate of 38 cents, declining from 40 cents the previous quarter and also a year earlier.

Penala downgraded Fifth Third to a neutral rating from a "Buy" rating, with a price target of $16.50, saying "we see few near term catalysts and believe that valuations reflect the approx. $1bn in after-tax gains that FITB can potentially realize from the sale of its remaining stake in Vantiv and subsequently deploy this toward buying back shares."

Fifth Third's shares have risen 19% since the end of the second quarter, and the company's near-term capital return potential is quite visible. "By contrast, capital return expectations are far more muted for money center banks," Penala said, "and investors that prefer to continue to invest in this theme will find more upside in C and JPM, in our view, than at regional banks generally."

FITB Chart FITB data by YCharts

Interested in more on Fifth Third Bancorp? See TheStreet Ratings' report card for this stock.

-- 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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