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5 Regional Banks to Watch Heading Into Earnings (Update 2)

Stocks in this article: BAC COF USB FITB STI JPM C WFC BBT PNC


Shares of SunTrust (STI) of Atlanta closed at $28.81 Thursday, returning 2% year-to-date, following a 62% return during 2012. The shares trade for 1.2 times tangible book value, and for 9.8 times the consensus 2014 EPS estimate of $2.93. The consensus 2013 EPS estimate is $2.69.

Following the completion of the stress tests, SunTrust announced it had received Federal Reserve approval to double its quarterly dividend to 10 cents and for share buybacks of up to $200 million through the first quarter of 2014. Based on the higher dividend payout, the shares not have a yield of 1.39%.

SunTrust will announce its first-quarter results on April 19. The consensus among analysts is for EPS of 62 cents, declining from 65 cents in the fourth quarter, but increasing from 46 cents in the first quarter of 2012.

KBW analyst Christopher Mutascio rates SunTrust "market perform," with a $30 price target, estimating the company will report first-quarter earnings of 60 cents. The analyst in a report on March 1 discussed the possible effect of slowing mortgage loan origination volume declining sale margins in the secondary market. Assumptions of an 8% decline in mortgage origination volume in the first quarter from the fourth quarter, with a 20% decline in gain-on-sale margins for newly originated mortgage loans, would lead to "a 1Q13 pro forma total mortgage banking income level of $238 million," declining from $286 million in the fourth quarter.

Mutascio's actual estimate for SunTrust's first-quarter mortgage banking income is $271 million, with the difference between his estimate and the pro forma number being four cents a share

"There are several moving parts to mortgage banking income (origination volumes, the gain-on-sale margin, servicing income, etc.) that reduce the confidence level in the resulting pro forma output," Mutascio wrote. "However, if our assumptions are close to being accurate, then there could be building pressure on the company to make good on its operating efficiency programs sooner than later."

Credit Suisse analyst Craig Siegenthaler on Tuesday downgraded SunTrust to a neutral rating from an "outperform" rating, following a meeting with the bank's senior management. "We see risk to '13/'14 EPS due to (1) lower than expected expense mgmt. in '13/'14, and (2) the impact of swap portfolio runoff on net interest income ," he wrote in a report on Tuesday.

On a more positive note, Siegenthaler added that "while we still think there is downside to STI's '14 estimates from gain on sale declines, we estimate this is expected from the buy-side in 1H13."

Siegenthaler lowered his 2013 EPS estimate for SunTrust to $2.47 from $2.56 and lowered his 2014 EPS estimate by a penny, to $2.84. The analyst's price target for SunTrust's shares is $28.00.

SunTrust's shares were down over 1% in afternoon trading, to $27.94.

STI Chart STI data by YCharts

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

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