Regions Bucks Market: Financial Winner

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the winner among the largest U.S. banking names on Wednesday, with shares rising 2% to close at $6.59.

The broad indexes ended mixed, after the National Association of Realtors reported total existing-home sales in the U.S. declined 0.9% to a seasonally adjusted annual rate of 4.59 million in February from an upwardly revised 4.63 million in January, but were 8.8% higher than the 4.22 million-unit level reported the same time last year.

Meanwhile, the Mortgage Bankers Association said Wednesday that mortgage applications on a seasonally adjusted basis fell 7.4% in the U.S. last week from the previous week, as interest rates climbed.

The KBW Bank Index ( I:BKX) pulled back 1% to close at 49.90, with 21 out of 24 index components showing declines for the session.

Regions Financial has now seen its shares return 50% year-to-date, following last year's 38% decline.

The company expects by the end of this month to complete the sale of its Morgan Keegan brokerage subsidiary to Raymond James Financial ( RJF) for roughly $1.2 billion. "

Regions owes $3.5 billion in federal bailout funds received in November 2008, through the Troubled Assets Relief Program, or TARP. Following the completion of the Federal Reserve's annual stress tests last week, Regions priced a $900 million common stock offering, and said that including the offering's net proceeds of $875 million, the money from the Morgan Keegan sale and a full redemption of TARP preferred shares held by the U.S Treasury, the company's Tier 1 common equity ratio its Tier 1 common equity ratio would be a strong 9.1%, based on Dec. 30 numbers.

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Guggenheim Securities analyst Marty Mosby on Wednesday upgraded Regions to a "Buy" rating from a neutral rating, while raising his price target to $9 from $6, saying that "earnings momentum over the next year will be strong as asset quality pressures subside.

Mosby said that he expected "RF's core earnings continue to slowly improve, as loan loss provision declined for the fifth straight quarter," but said he also expect the company's "return to normalized earnings power to be gradual, as short-term rates need to rise to get net interest margin significantly above current levels, elevated credit-related operating expenses could take longer to be eliminated, and increased share count could dilute earnings further as TARP is repaid."

Regions trades for nine times the consensus 2013 EPS estimate of 73 cents.

Mosby is ahead of the consensus, estimating that Regions will earn 83 cents a share this year, followed by 2013 EPS of $1.05.

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

Shares of Capital One ( COF) rose 0.5% to close at $55.38.

The shares have now returned 31% year-to-date, following a flat return during 2011.

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The company recently completed its long-delayed acquisition of ING Direct, and expects soon to complete its purchase of HSBC's ( HBC) $30 billion U.S. card portfolio for a $2.6 billion premium having been received. The company last priced a $1.25 billion common equity offering.

Marty Mosby on Wednesday upgraded Capital One to a "Buy" rating from a neutral rating, while raising his price target to $67 from $54, saying that he expects the two acquisitions "be accretive over the next year," and add "between $0.50 and $1.00 in earnings power once fully integrated."

The analyst also said that "recent pressure to increase investment in risk management processes ahead of the closing of the acquisitions pressured fourth quarter earnings and the stock price."

Capital One's shares trade for eight times the consensus 2013 EPS estimate of seven dollars.

Mosby estimates the company will earn $5.86 cents a share during 2012, followed by 2013 EPS of $7.21.

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

Shares of Bank of America ( BAC) were up a penny to close at $9.82.

The shares have now returned 77% year-to-date, following a 58% decline during 2011.

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Despite the run-up, the shares trade for a heavily discounted 0.8 times the company's reported Dec. 30 tangible book value of $12.95, and are cheaply priced to forward earnings, trading for eight times the consensus 2013 earnings estimate of $1.19, among analysts polled by Thomson Reuters.

Marty Mosby on Wednesday reiterated his neutral rating for Bank of America, but raised his price target for the shares to $11 from $9, saying the stock's "current discount to tangible book value per share represents the potential upside once the market decides that BAC doesn't need to issue incremental capital to fund future losses from Countrywide's residential real estate overhang issues and that these future losses could be covered with future earnings."

Mosby also said that despite passing the Federal Reserve's 2012 bank holding company stress tests, "BAC still needs to accumulate capital as quickly as possible to become compliant with Basel III requirements," and that "furthermore, we believe that until short-term rates begin to rise, BAC's earnings power is $10-12.5B a year."

Mosby on Wednesday raised his 2012 EPS estimate for Bank of America to $1.01 from 92 cents, and his 2013 EPS estimate to $1.10 from 92 cents.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

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

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

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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.