This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Buy SunTrust Now: Deutsche Bank

Stocks in this article: STI WFC BAC

NEW YORK ( TheStreet) -- It's time for investors to buy shares of SunTrust (STI), as the bank's coming cost savings from the housing recovery is not reflected in consensus earnings estimates, according to Deutsche Bank analyst Matt O'Connor.

O'Connor on Friday upgraded SunTrust of Atlanta to a "buy" rating from a "neutral" rating, while raising his price target for the shares to $39 from $36, saying in a note to clients that based on 2015 earnings estimates, the stock trades at "a 15% discount to peers."

The analyst raised his 2014 earnings estimate for SunTrust to $2.91 a share from $2.75, and raised his 2015 EPS estimate to $3.46 from $3.21.

A major theme for banks in the third quarter is the huge decline in mortgage refinancing applications, as long-term interest rates rise. This theme is expected to continue over the next year. According to its latest mortgage forecast, the Mortgage Bankers Association expects total mortgage refinance volume in the United States to decline from $1.247 trillion in 2012 to $973 billion in 2013 and $388 billion in 2014. The MBA expects total mortgage loan origination volume to fall from $1.750 trillion in 2012 to $1.592 trillion this year and $1.091 trillion in 2014.

Those are major declines, leading Wells Fargo (WFC) recently to announce 2,300 layoffs of loan origination staff. Bank of America (BAC) has also recently announced mortgage lending-related layoffs.

"Mortgage production revenue seems likely to decline sharply at STI and others," O'Connor wrote, "However, while production revs have been strong at STI in recent periods, STI's mortgage line-of-business overall has generated a net loss of $96m reflecting depressed servicing fees, elevated environment costs/operating losses and higher than normal other default servicing related costs (personnel related)."

The bottom line is that even though he expects SunTrust's mortgage origination revenue to decline by 50% by the end of the year, O'Connor expects the company's total mortgage revenue to decline by only 15% to 20%, as losses tied to soured loans decline.

Deutsche Bank's earnings estimates for SunTrust also factor in "a sharp rise in servicing fees (from $39m to $120m or from just 7bps of assets serviced (annualized) to 20bps) given a slowdown in amortization rates (as rates rise)."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,232.34 +163.47 0.96%
S&P 500 2,001.75 +29.01 1.47%
NASDAQ 4,619.0820 +71.2480 1.57%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs