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Regions Financial

(RF) - Get Report

, the top-performing financial stock in the S&P 500 in 2012, still has further upside as real estate values recover in the U.S. southeast, according to Goldman Sachs analysts, who upgraded the stock to buy from neutral on Thursday.

Regions shares have posted whopping 43.95% gains so far in 2012, outpacing even

Bank of America

(BAC) - Get Report


which has also been riding the real estate rebound


"A further recovery in real estate will drive both provisions and environmental costs lower," Goldman analysts wrote of Regions on Thursday. They argue Regions is still relatively cheap versus peers due to "skepticism around the company's ability to rid its books of its past out-sized credit exposures, grow loans, and profitably capitalize on the new environment." Regions trades at 8.1 times 2013 earnings estimates compared to 9.5 times comparable institutions.

In the same report, Goldman's analysts cited


(STI) - Get Report

as another bank positioned to benefit from the recovery in housing in the southeastern U.S.

Nonetheless, SunTrust has fewer reserves against bad loans than Regions, meaning less ability to "release" those reserves to give a boost to earnings, according to Goldman's analysts. While they see potential for cost reductions from SunTrust, they aren't convinced the bank will be able to realize it given a large backlog of troubled loans in Florida and continued risk of having loans put back to them by bondholders.


Written by Dan Freed in New York


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