Fifth Third Bancorp: Financial Winner

NEW YORK ( TheStreet) -- Fifth Third Bancorp ( FITB) of Cincinnati was the winner on Thursday among the nation's largest banks, with shares rising over 1% to close at $16.86.

The broad indexes ended higher, with the S&P 500 ( SPX.X) index pushing further into record territory, after the weekly unemployment claims numbers from the Department of Labor showed a reversal from the previous week's increase.

The Labor Department said that first-time unemployment claims declined by 42,000 to 346,000 for the week ended April 6, which more than reversed the previous week's jump to an upwardly revised 388,000. Economists polled by Thomson Reuters were expecting jobless claims for the week ended April 6 to come in at 365,000.

The KBW Bank Index ( I:BKX) was down slightly to close at 56.84, with 12 of the 24 index components showing declines for the session.

First-quarter earnings season for the big banks starts on Friday, with JPMorgan Chase ( JPM) and Wells Fargo ( WFC) scheduled to report before the market opens.

"We project EPS contraction of 2% q/q on average but growth of 16% y/y for our coverage," UBS analyst Greg Ketron said in an industry preview report on Tuesday. With all signs pointing to slower mortgage origination volume and lower gains on sale this year, the analyst wrote that "net revenue weakness may lead to stock declines, and we view this as an attractive opportunity to add to positions in our Buy-rated names."

Among the large banks covered by his firm, Ketron has "buy" ratings on U.S. Bancorp ( USB) of Minneapolis, BB&T ( BBT) of Winston-Salem, N.C.., and SunTrust ( STI) of Atlanta.

JPMorgan Chase

The consensus among analysts polled by Thomson Reuters is for JPMorgan Chase to report first-quarter EPS of $1.39 a share, matching the results in the fourth quarter and increasing from $1.19 in the first quarter of 2012.

When discussing areas of focus for JPMorgan's earnings report, KBW analyst Frederick Cannon said in a note to clients late on Tuesday that "while much attention is paid to trading, investment banking, and net interest income, the company's asset management business quietly chugs along as the second-largest component of total revenues (15% in 2012)."

"If the 4Q12 run rate of $3.7 billion in this line item were to hold true, it would represent approximately $14.8 billion in annual revenues versus our estimate of just $14.2 billion for 2013," Cannon wrote. KBW is behind the consensus, estimating that JPMorgan will report first-quarter earnings of $1.33 a share, with full-year estimates of $5.45 for 2013 and $5.70 for 2014.

But on a brighter note, Cannon's comment highlights the possibility of an upside earnings surprise from JPMorgan Chase, along with upward EPS estimate revisions from sell-side analysts, which can only be good news for investors.

JPMorgan's shares were up slightly to close at $49.31.

Wells Fargo

Analysts expect Wells Fargo to report first-quarter earnings of 88 cents a share, declining from 92 cents in the fourth quarter, but increasing from 75 cents in the first quarter of 2012.

Wells Fargo's mortgage loan origination and sale revenue is expected to suffer a major decline this year, although the decline may be largely offset by increases in loan servicing revenue and accounting adjustments.

Wells Fargo's shares were down slightly to close at $37.51.

Fifth Third

Shares of Fifth Third Bancorp have returned 12% this year, following a 23% return during 2012. The shares trade for 1.4 times tangible book value, and for 10.0 times the consensus 2014 EPS estimate of $1.69. The consensus 2013 EPS estimate is $1.64.

Following the completion of the Federal Reserve's annual stress tests, Fifth Third on March 14 announced a "potential increase" in its quarterly dividend from 10 cents a share, with approval for the potential repurchase of up to $750 million in trust preferred securities. The company also received approval for the potential conversion of $398 million in convertible preferred shares to common shares. If the conversions are completed, the company has Federal Reserve approval for common share buybacks totaling up to $984 million.

Based on the current quarterly payout, the shares have a dividend yield of 2.37%.

The company will announce its first-quarter results on April 18, with the consensus estimate being a profit of 38 cents, declining from 43 cents in the fourth quarter and 45 cents in the first quarter of 2012.

UBS analyst Stephen Scinicariello in a report on Tuesday included Fifth Third among four mid-cap value bank stock plays, saying "better-than-feared fundamentals should continue to lead to revaluation of the sector."

Scinicariello's price target for Fifth Third is $19, and on Tuesday the analyst lowered his first-quarter EPS estimate to 40 cents from 42 cents, while lowering his full-year 2013 EPS estimate to $1.71 from $1.78, and his 2014 EPS estimate to $1.79 from $1.87, "due to mortgage banking trends."

On a more encouraging note, Fifth Third's complicated 2013 capital plan could result in common-share buybacks totaling up to $1.084 billion, Scinicariello wrote, adding that "the potential replacement of $750MM of trust preferreds could bolster the net interest margin ."

FITB Chart FITB data by YCharts

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

-- 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 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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