SunTrust Rises on Goldman's Glowing Report

NEW YORK ( TheStreet)-- SunTrust Banks ( STI)' shares got a lift from Goldman Sachs on Tuesday as analysts cited it as a neutral-rated stock that could outperform during second quarter earnings season.

Shares of SunTrust rose more than 2% early Tuesday before erasing some of those gains by late morning. Still, shares were outperforming those of both Regions Financial ( RF) and Fifth Third Bancorp ( FITB), Goldman's other two top picks for the second quarter earnings season, both of which are buy-rated. The bank earnings season kicks off Friday, when JPMorgan Chase ( JPM)and Wells Fargo ( WFC) report.

SunTrust shares still offer upside for investors looking to capitalize on what are widely expected to be strong second quarter mortgage banking results, according to a report on mortgage banking published Tuesday by Goldman's analysts.

While Goldman's analysts acknowledge that "mortgage banking is a well known source of strength for banks in the low-rate environment," they argue "the tailwind could be even better and longer than expected." That's because some $5 trillion worth of mortgages, or 60% of the total outstanding, remain eligible for refinancing, according to Goldman. Industry analysts estimate only 20% of that total will actually refinance, leaving lots of room for a positive surprise, the report contends.

Such a surprise would benefit Wells, Fifth Third and SunTrust above all, due to "market share, footprint and revenue contribution," according to the report.

SunTrust shares also look attractive from a valuation standpoint, according to a separate Goldman report published Tuesday that focused broadly on second quarter earnings. The report states that SunTrust trades at 95% of tangible book value and 9.2 times 2013E earnings estimates, equating to 26% and 7% discounts to its regional peers.

-- Written by Dan Freed in New York.

Follow this writer on Twitter.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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