3 Best Bank Stock Earnings Bets: Jefferies

Updated with market close information and revised year-to-date returns.

NEW YORK ( TheStreet) -- Jefferies analyst Ken Usdin on Thursday highlighted four regional bank holding companies "better positioned to show growth" in core earnings, with industry consolidation playing a role.

Usdin expects "large/mid-cap regionals to post decent pre-provision income (PPNR) growth, aided by declining credit-related costs."

Pre-provision revenue is a very useful tool to help analysts and investors understand what's really going on with a bank since at this point in the economic recovery, most of the large industry players are appropriately releasing loan loss reserves which has the effect of distorting bottom-line results.

With banks continuing to face pressure on their net interest margins in the prolonged low-rate environment, Usdin expects, on average, "low single-digit net interest income growth" this year, and says that major regional players "capable of growing net interest income at faster rates" include KeyCorp (because of CD repricing and loan growth), PNC Financial Services Group ( PNC) (from its coming acquisition of RBC Bank (USA), and M&T Bank ( MTB), on the "deployment of excess liquidity."

The analyst expects fee income for the regionals as a group to be flat during 2012, from the effect on debit card interchange fees from the Durbin Amendment and "tough comps for mortgage banking." Usdin expects BB&T ( BBT), Comerica ( CMA) and PNC to show "better growth due to recent acquisitions," while Fifth Third Bancorp ( FITB) and U.S. Bancorp ( USB) "could have a tougher time if mortgage origination volumes decline in line with our expectations.

For the group's cost management, Usdin sees SunTrust ( STI), Fifth Third and M&T "doing a better job of managing the core," while Huntington Bancshares ( HBAN) "could continue to lag a bit."

On "environmental costs," including mortgage putbacks, the analyst says credit expenses "continue to be a significant challenge," notably for SunTrust and BB&T.

Here's a quick look at the three buy-rated regionals best-positioned for 2012 pre-provision earnings growth, according to Usdin, followed by five more with neutral ratings that face "a tougher time:"

Shares of PNC Financial Services of Pittsburgh closed at $60.70 on Thursday, returning 6% year-to-date.

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The shares trade for 1.3 times tangible book value, according to HighlineFI, and for 10 times the consensus 2012 earnings estimate of $6.21 a share, among analysts polled by Thomson Reuters.

Based on a quarterly payout of 35 cents, the shares have a dividend yield of 1.93%.

Usdin expects PNC's "net interest income growth to be the primary challenge for 2012 , as the company expects $500mm of purchase accounting benefits to go away in 2012."

The RBC Bank (USA) deal is expected to be completed late in the first quarter, and excluding the effect of purchase accounting, Usdin expects "that PNC's implied 'core' net interest margin expectation is around 3.40%, essentially flat year-over-year."

PNC projects 5% growth in fee income during 2012, to $5.9 billion. Usdin estimates that PNC will grow its pre-provision net revenue 7% year-over-year in 2012, to $5.7 billion.

Usdin rates PNC a "Buy," with a $66 price target.

Interested in more on PNC Financial Services Group? See TheStreet Ratings' report card for this stock.

Huntington Bancshares of Columbus, Ohio, has seen its stock return 8% year-to-date, closing Thursday at $5.93.

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The shares trade for 1.1 times tangible book value, according to HighlineFI, and for 10 times the consensus 2012 EPS estimate of 59 cents.

Based on a quarterly payout of four cents, the shares have a dividend yield of 1.72%.

Usdin says that for Huntington, "Top-line growth is expected to continue, but expense growth continues as well, weighing on" revenue growth. The analyst projects that Huntington will see a 2% increase in pre-provision net revenue during 2012, to $916 million.

The analyst says that Huntington's "loan production (driven by C&I and auto) should outpace the group again this year, which combined with relative net interest margin stability (driven by CD repricing/mix shift to lower-cost deposits) should keep net interest income on an upward trajectory throughout the year."

Usdin rates Huntington a "Buy" with a $6.50 price target.

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

Shares of Fifth Third Bancorp of Cincinnati closed at $13.63 Thursday, returning 7% year-to-date.

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The shares trade for 1.3 times tangible book value, according to HighlineFI, and for 9.5 times the consensus 2012 EPS estimate of $1.40.

Based on a quarterly payout of eight cents, the shares have a dividend yield of 2.10%.

Usdin projects that Fifth Third's 2012 pre-provision net revenue will decline by 4% to $2.2 billion, with pressure on the expense-side.

The analyst says "near-term growth is contingent on better expense discipline," and that although the company has an expense reduction program in place, "general belt tightening, along with a little help from lower environmental costs, should get the quarterly expense run-rate back down to $950mm per quarter (4Q11 expenses were $993mm)."

Usdin rates Fifth Third a "Buy," with a $15 price target.

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

Shares of Comerica of Dallas closed at $30.48 Thursday, returning 18% year-to-date.

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The shares trade for 0.9 times tangible book value, according to HighlineFI, and for 13 times the consensus 2012 EPS estimate of $2.31.

Based on a quarterly payout of 10 cents, the shares have a dividend yield of 1.35%.

With "modest revenue synergies" from the company's acquisition of Sterling Bancshares last July, along with "efficiency improvements," Usdin says "it is all about loan growth for Comerica."

The analyst expects "average loan growth of 8.0% in 2012 and period-end growth of 3.7% (vs. median peer growth of 4.6%)."

Usdin expect's Comerica's pre-provision net revenue to grow 16% during 2012, to $795 million.

The analyst has a "Hold" rating on Comerica, with a $28 price target.

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

Shares of M&T Bank of Buffalo closed at $881.87 Thursday, returning 7% year-to-date.

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The shares trade for 2.1 times tangible book value, according to HighlineFI, and for 12 times the consensus 2012 EPS estimate of $6.69.

Based on a quarterly payout of 70 cents, the shares have a dividend yield of 3.46%.

The company owes $230 million in federal bailout funds received through the Troubled Assets Relief Program, or TARP, in December 2008, plus an additional $151.5 million in TARP money that was originally provided to Provident Bancshares, which M&T acquired in May 2009.

Usdin says the M&T is "well-positioned to post above-average pre-provision income growth (ex. credit expense relief)," and forecasts a 7% increase in pre-provision net revenue during 2012, to $1.6 billion.

The analyst expects M&T's net interest margin to expand to 3.68% in 2012, from 3.60% last year.

Usdin rates M&T a "Hold," with an $83 price target.

Interested in more on M&T Bank? See TheStreet Ratings' report card for this stock.

Shares of KeyCorp of Cleveland closed at $7.99 Thursday, returning 4% year-to-date.

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The shares trade for 0.9 times tangible book value, according to HighlineFI, and for 10 times the consensus 2012 EPS estimate of 76 cents.

Based on a quarterly payout of three cents, the shares have a dividend yield of 1.27%.

Usdin expects KeyCorp's 2012 pre-provision net revenue to decline by 4%, to $1.26 billion, although he also expects 2013 pre-provision net revenue to expand to $1.34 billion.

The analyst expects the company to see a benefit to its net interest margin from its coming purchase of 37 Upstate New York Branches from First Niagara Financial Group ( FNFG), as part of that company's purchase of roughly 200 HSBC ( HBC) branches, which will be immediately followed by about 100 branch divestitures.

Usdin adds that while the company "posted 12% annualized loan growth in 4Q," a pace he called "not sustainable," he expects that the bank will continue to post positive growth" of rouhly 5% in 2012, "due to strength in manufacturing across its Midwest footprint."

The analyst has a "Hold" rating on KeyCorp, with an $8 price target.

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

Shares of BB&T Corp. of Winston-Salem, N.C., closed at $30.19 Thursday, returning 21% year-to-date.

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The shares trade for twice their tangible book value, according to HighlineFI, and for 12 times the consensus 2012 EPS estimate of $2.49.

Based on a quarterly payout of 16 cents, the shares have a dividend yield of 2.21%.

Usdin says that the accounting consideration related to BB&T's purchase of the failed Colonial Bank of Montgomery, Ala., from the Federal Deposit Insurance Corp. in August 2009, "continues to be a point of confusion," because of the FDIC's loss-share coverage.

For 2012, the analyst expects BB&T's net interest margin to contract to 3.80% from 4.06%, and Usdin estimates the company's 2012 pre-provision net revenue will total $3.5 billion, increasing 19% from 2011.

Usdin has a "Hold" rating on BB&T, with a $27 price target.

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.

Shares of Zions Bancorporation ( ZION) of Salt Lake City closed at $19.16 Thursday, returning 18% year-to-date.

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The shares trade for just under tangible book value, according to HighlineFI, and for 13 times the consensus 2012 EPS estimate of $1.45.

The company owes $1.4 billion in TARP money.

Usdin says that for Zions, "significant declines in credit-related costs over the next several quarters should allow revenue growth appear pretty solid," and projects 2012 pre-provision net revenue to grow by 12%, to $691 million.

However, excluding the effect of a reduction in credit-related costs, the analyst says the company's revenue growth will be "likely be less impressive relative to peers."

Usdin expects continued pressure from the low rate environment on Zions Bancorporation's net interest margin, but also says the "saving grace" for the margin could be "$6.6B in cash at the Fed, which should be mix-shifted into loans as demand improves," which "should keep core margin compression limited to a few basis points per quarter."

The analyst has a neutral rating on Zions, with an $18 price target.

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

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.
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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