Regions Financial: Upgrade Winner (Update 1)

Updated with market close information, updated returns, and a discussion on Comerica.

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the winner on Friday among the largest U.S. financial names, with shares rising 2% to close at $5.95.

The broad indexes saw slide declines. With no major U.S. economic releases on Friday, investors were once again looking across the water, as Eurozone leaders agreed to use the region's bailout fund to raise money for Greece's bond swap. The move will help Greece avoid a default in late March, as a step toward Greece receiving its second massive European bailout.

It is still possible that the International Swaps and Derivatives Association could decide that forcing creditors to accept haircuts on their Greek sovereign debt investments will trigger credit default swaps payouts.

The The KBW Bank Index ( I:BKX) pulled back slightly to close at 45.58, with 19 of the 24 index components showing afternoon declines.

Regions Financial's have now returned 38% year-to-date, following a decline of 38% during 2011.

The shares trade for 0.9 times the company's reported Dec. 30 tangible book value of $6.37, and for 13 times the consensus 2012 earnings estimate of 45 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 71 cents.

That's a rather higher forward price-to-earnings multiple. The big-four U.S. bank holding companies all trade at lower forward P/E:
  • Shares of JPMorgan Chase (JPM) closed at $40.64 Friday, returning 23% year-to-date. The shares trade for nine times the consensus 2012 EPS estimate of $4.68. The 2013 EPS estimate is $5.44. The shares trade for 1.3 times tangible book value, according to HighlineFI. JPMorgan features an attractive dividend yield of 2.46%, based on a 25-cent quarterly payout.
  • Citigroup (C) closed at $34.08 Friday, returning 30% year-to-date. The shares trade for nine times the consensus 2012 EPS estimate of $3.97. The consensus 2013 EPS estimate is $4.76. Citi trades for just 0.7 times tangible book value.
  • Shares of Wells Fargo (WFC) closed at $31.28 Friday, returning 14% year-to-date. The shares trade for twice their tangible book value, reflecting the company's status as the strongest and steadiest earner among the big four over the past year. Wells Fargo's shares trade for 10 times the consensus 2012 EPS estimate of $3.20. The consensus 2013 EPS estimate is $$3.69.
  • Bank of America (BAC) trades at the highest forward P/E among the big four, at 11.5 times the consensus 2012 EPS estimate of 71 cents, based on Friday's closing price of $8.12. The consensus 2013 EPS estimate is $1.20. Bank of America's shares were up 46% through Thursday's close, following a 58% decline in 2011. The 52-week total return through Thursday's close was a negative 43%.

Regions stands out, as it still owes $3.5 billion in federal bailout funds received in 2008 through the Troubled Assets Relief Program, or TARP.

The company agreed in January to sell its Morgan Keegan brokerage subsidiary to Raymond James Financial ( RJF) for "total consideration of $1.18 billion."

Raymond James analyst Michael Rose on Friday upgraded Regions to an "Outperform" rating, with a $7.25 price target, following recent meetings with the company's management, saying "the upcoming stress tests will put the capital issue to rest where we believe Regions will raise common equity in conjunction with results with TARP repayment occurring shortly after its sale of Morgan Keegan closes."

The Federal Reserve is scheduled to complete its latest round of stress tests on March 15.

Looking beyond TARP, Rose sees "a ramp up in credit leverage through 2012 at a point where many peers/the industry should begin to see this dynamic begin to wind down. "

The analyst also forecasted that Regions would see an expansion in its net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings - "while most peers will see it fall."

Rose expects regions to raise about $700 million in common equity in connection with TARP repayment.

Rose estimates Regions will earn 42 cents a share in 2012, followed by EPS of 75 cents in 2013.

Interested in more Regions Financial? See TheStreet Ratings' report card for this stock.

Friday's bank stock loser was Comerica ( CMA) of Dallas, with shares declining more than 2% to close at $29.54, after Rose downgraded the stock to a "Market Perform" rating, from "Outperform," since the stock was near the analysts $31 price target.

Rose also said that he believed "expectations for capital repatriation coming out of the upcoming stress tests are fully embedded in the stock," price, and that "with lower expected profitability (ROE/ROA) relative to many peers until rates rise (given its highly commercial business mix) and with credit having largely normalized, we view potential upside as more limited in the short to intermediate term."

Comerica's shares have now returned 14% year-to-date, following a decline of 38% last year. The shares trade just under book value, and for 13 times the consensus 2012 EPS estimate of $2.31. The consensus 2013 EPS estimate is $2.61.

Rose is slightly behind the consensus, estimating CMA will earn $2.30 a share during 2012, but is ahead of the 2013 consensus estimate, projection the company will earn $2.75 a share.

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

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

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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.