Citigroup and Regions: Financial Winners

NEW YORK ( TheStreet) -- Citigroup ( C) and Regions Financial ( RF) were the winners among the largest U.S. banks on Monday, with shares of both companies rising 2%.

Citigroup closed at $47.60 and Regions closed at $8.31.

The broad indexes on Monday all ended with slight gains, as investors continued to digest Friday's improving employment numbers. The Bureau of Labor Statistics said that the U.S. economy added 236,000 jobs during February on a seasonally adjusted basis, and that the unemployment rate improved to 7.7% from 7.9% in January.

Although the effect of the required $85 billion in federal spending cuts this fiscal year has yet to be felt, "U.S. employment data are on a track suggesting a strengthening recovery," according to Citigroup director of economic and market analysis Steven Wieting.

Wieting said in a report in Monday that the Federal Reserve's "easing cycle is showing greater signs of impacting end borrowing costs, away from simply generating low bond market yields," however, "there is much still to recover. Outside 18 housing-related job categories, employment remains about 1.5 million below the level of five years ago while the adult population has risen by 12.2 million over the same time frame."

The Federal Reserve has been making monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down. "The Fed will most likely taper off the size of asset purchases during 2013 and conclude QE in early 2014," Wieting wrote.

Upcoming Dividend and Buyback Announcements


With the Federal Reserve completing its annual stress tests for the nation's 18 largest banks last Thursday, investors are looking ahead to Thursday, March 14, for the regulator to announce the results of the Comprehensive Capital Analysis and Review (CCAR) of the banks' capital plans through the first quarter of 2014. Most of the big banks and many large regional banks not subject to CCAR but subject to the Fed's Capital Plan Review (CapPR), are expected to announce dividend increases and/or stock buybacks.

Credit Suisse analyst Craig Siegenthaler in a report on Sunday said that he expected capital deployment to be a "catalyst" for shares of Regions, SunTrust ( STI) and Zions Bancorporation ( ZION), even though he feels "cautious" about the industry over the short term.

Regions Financial of Birmingham, Ala., currently pays a quarterly dividend of $0.1 a share. Siegenthaler expects the company to pay total dividends of $0.13 a share this year, and to be approved by the Federal Reserve for $264 million in share buybacks.

Shares of SunTrust of Atlanta were up over 1% to close at $29.73. The company currently pays a quarterly dividend of $0.05 a share. Siegenthaler expects SunTrust to pay total dividends of $0.59 a share this year, and to repurchase $365 million worth of shares.

Zions Bancorporation was also up over 1%, closing at $35.63. The company currently pays a quarterly dividend of $0.01 a share. Siegenthaler estimates Zions will pay total dividends of $0.25 a share this year, with $24 million in share buybacks.

A Short-term Top for Bank Stocks?


The KBW Bank Index ( I:BKX) rose 1% to close at 57.11. The index has risen 11% this year, following a 30% return during 2012.

"We find little in the way of fundamental support for continued outperformance... and would use this rally as an opportunity to lighten up on select regional bank exposure ahead of earnings.," Bank of America Merrill Lynch Erica Penala said in a report late on Sunday.

Penala said that banks' first-quarter results "are unlikely to provide many upside surprises as loan growth" remains weak and banks continue to face pressure on their net interest margins.

Penala continues to favor Citigroup ( C) and JPMorgan ( JPM), as "top picks," with price multiples that are "overly discounted."

Citigroup's shares trade for 0.93 times their reported Dec. 31 tangible book value of $51.19, and for 9.1 times the consensus 2014 EPS estimate of $5.22, among analysts polled by Thomson Reuters. Penala's price target for the shares is $50.00, which she bases on estimated year-end 2013 multiples of 0.9 times tangible book value, and 10 times earnings.

UBS analyst Brennan Hawken also favors Citigroup, and on Monday upgraded the stock to a "buy" rating from a "neutral" rating, with a much more aggressive price target of $62.00. Hawken said in a report that investors would " gain greater comfort" with Citigroup, as it turns into "an operating story under new CEO Mike Corbat."

Hawken estimates that Citigroup will earn $5.00 a share this year, with earnings increasing to $5.75 a share in 2014.

JPMorgan Chase's stock rose nearly 1% to close at $50.48, trading for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for 8.7 times the consensus 2014 EPS estimate of $5.81. Penala's price target for JPMorgan is $55.00, based on a multiple of 1.3 times estimated tangible book value at the end of this year, and a multiple of nine times her "blended" earnings estimates for 2013 and 2014.

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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.