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Big Regional Bank Stocks Have 20% Upside for 2014, Says Credit Suisse

NEW YORK (TheStreet) -- A group of nine regional banks subject to the Federal Reserve's 2014 stress tests could see their stocks rise as by over 20% over the next year, according to Credit Suisse analyst Craig Siegenthaler.

The Fed last month announced it would expand the list of banks subject to its annual Comprehensive Capital Analysis and Review (CCAR) to 30 U.S. bank holding companies with total assets of at least $50 billion.  Over the past several years, CCAR -- the annual regulatory review of banks' plans to deploy excess capital through dividend increases, stock buybacks or acquisitions -- only covered 18 U.S. banks.

Siegenthaler in a client note on Tuesday wrote that the "risk/reward [is] still favorable for the Regional Bank CCAR 9," with the stocks trading at low multiples to tangible book value and with "investor sentiment limiting downside risk."  The analyst expects improved earnings and dividend prospects for 2015 and 2014 to "drive stock price upside in '14."

Here's the group of nine regional banks, along with current valuation ratios, along with ratings and price targets from Credit Suisse.  The firm raised its price targets for all nine name on Tuesday, but has "outperform" ratings only only four of them:

  • Shares of SunTrust (STI) of Atlanta closed at $35.43 Tuesday.  The shares trade for 1.5 times tangible book value, according to Thomson Reuters Bank Insight, and for 10.8 times the consensus 2014 earnings estimate of 2.96 a share.  The consensus 2015 EPS estimate is 3.27.  Credit Suisse has a neutral rating on SunTrust with a price target of $39.00.
  • B&BT Corp. (BBT) of Winston-Salem, N.C., closed at $34.29 Tuesday.  The shares trade for 2.2 times tangible book value and for 1.5 times the consensus 2014 EPS estimate of $3.02. The consensus 2015 EPS estimate is $3.30.  Credit Suisse has a neutral rating on BB&T with a price target of $42.00.
  • Regions Financial (RF) of Birmingham, Ala., closed at $9.55 Tuesday.  The shares trade for 1.4 times tangible book value and for 11.2 times the consensus 2014 EPS estimate of 85 cents. The consensus 2015 EPS estimate is 91 cents.  Credit Suisse rates Regions "outperform," with a price target of $11.75.
  • Fifth Third Bancorp (FITB) of Cincinnati closed at $19.99 Tuesday.  The shares trade for 1.7 times tangible book value and for 11.5 times the consensus 2014 EPS estimate of $1.74. The consensus 2015 EPS estimate is $1.89.  Credit Suisse has a neutral rating on Fifth Third with a price target of $24.00.
  • KeyCorp (KEY) of Cleveland closed at $12.58 Tuesday.  The shares trade for 1.3 times tangible book value and for 12.3 times the consensus 2014 EPS estimate of $1.02. The consensus 2015 EPS estimate is $1.12.  Credit Suisse rates KeyCorp "outperform," with a price target of $16.00.
  • M&T Bank (MTB) of Buffalo, N.Y., closed at $114.12 Tuesday.  The shares trade for 2.3 times tangible book value and for 13.4 times the consensus 2014 EPS estimate of $8.49. The consensus 2015 EPS estimate is $9.40.  Credit Suisse has a neutral rating on M&T with a price target of $121.00.
  • Comerica of Dallas (CMA) closed at $44.95 Tuesday.  The shares trade for 1.3 times tangible book value and for 15.2 times the consensus 2014 EPS estimate of $2.95. The consensus 2015 EPS estimate is $3.29.  Credit Suisse has a neutral rating on Comerica  with a price target of $51.00.
  • Huntington Bancshares (HBAN) closed at $9.01 Tuesday.  The shares trade for 1.5 times tangible book value and for 12.5 times the consensus 2014 EPS estimate of 72 cents. The consensus 2015 EPS estimate is 80 cents.  Credit Suisse rates Huntington "outperform," with a price target of $11.50.
  • Zions Bancorporation (ZION) of Salt Lake City closed at $28.88 Tuesday.  The shares trade for 1.2 times tangible book value and for 15.7 times the consensus 2014 EPS estimate of $1.84. The consensus 2015 EPS estimate is $2.12.  Credit Suisse rates Zions "outperform," with a price target of $34.00.

Siegenthaler expects total payout ratios including dividends and share buybacks, to increase for the group of nine regional holding companies next year.  "This is driven by several banks which are still returning a low level of earnings to shareholders (ZION, RF, [Synovus (SNV)], STI) -- and we expect them to ask for a larger capital payout in CCAR '14 and CCAR '15," the analyst wrote.

"However, we also expect that BBT could seek to do a large acquisition in 2H14 -- which would could provide significant EPS accretion and is a better use of capital than dividends, buy-backs, or loan growth, in our view," he added.
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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Stock quotes in this article: STI, BBT, RF, FITB, KEY, MTB, CMA, HBAN, ZION, SNV 
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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