Regions Financial: Bank Stock Loser

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the loser among the largest financial names on Thursday, with shares sliding more than 2% to close at $8.95.

The broad indices ended lower and the KBW Bank Index ( I:BKX) was down 1% to close at 60.16, following a mostly disappointing batch of economic reports:

The Department of Labor reported that initial unemployment claims for the week ended May 11 increased by 32,000 to 360,000, while the four-week moving average for jobless claims increased by 1,250 to 339,250, from the previous week's revised figure of 338,000.

Economists polled by Thomson Reuters expected initial unemployment claims to come in at 330,000.

The Labor Department said continuing unemployment claims during the week ended May 4 declined by 4,000 to 3.009 million.

The Philadelphia Federal Reserve Bank said its Business Outlook Survey for May "indicates some weakening of activity this month." The survey's broadest measure of manufacturing conditions is the diffusion index of current activity, which declined to negative 5.2 from 1.3 in April. Economists had expected the diffusion index to rise to 2.4.

"The current activity index has shown no pattern of sustained growth over the past seven months, generally alternating between positive and negative readings," the Philadelphia Fed said, adding that in its most recent survey 29% of firms reported declining activity, while 24% reported increased activity.

The Bureau of Labor Statistics said the consumer price index fell a bigger-than-expected 0.4% in April and that the core CPI, excluding food and energy prices, rose by 0.1%. The consensus estimate was for a 0.2% decline in the CPI and 0.2% rise in the core CPI.

The Census Bureau reported that U.S. housing starts during April declined by 16.5% to a seasonally adjusted annual rate of 853,000, falling short of the consensus estimate of 973,000 among economists. Building permits, however, were up 14.3% to a seasonally adjusted annual rate of 1.017 million, which was above the expected pace of 945,000.

In a note to clients before the market opened on Thursday, Citigroup head of global equity strategy Robert Buckland wrote that "there has just been the biggest mid-cycle rerating of global equities in over 40 years. Stock prices have rallied 30% since the 2011 lows while earnings per share are flat."

Buckland added that "while equities still look cheap compared with bonds and cash, they no longer look cheap compared with their own history."

"Valuations imply less impressive gains from here," with the weakest stock returns expected in Japan and in the United States, according to Buckland.

Regions Financial

Shares of Regions Financial of Birmingham, Ala., have returned 26% this year, following a 67% return during 2012, when the company sold is Morgan Keegan brokerage subsidiary, raised common equity and fully repaid government bailout funds.

The shares trade for 1.2 times their reported March 31 tangible book value of $7.29, and for 9.2 times the consensus 2014 earnings estimate of 97 cents, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is 89 cents.

Following the completion of the Federal Reserve's annual stress tests in March, Regions announced regulatory approval to increase its quarterly dividend on common shares to 3 cents from a penny, while also being approved to repurchase up to $350 million in common shares through the first quarter of 2014.

Regions was also approved to repurchase $500 million in trust preferred securities, which was completed on April 30. The redeemed trust preferreds had a coupon of 6.625%. The redemption will save the bank $33.1 million in annual dividend payments.

Jefferies analyst Ken Usdin on April 26 upgraded Regions to a "buy" rating, with a $10 price target, saying the bank "has an increasingly compelling combo of defensiveness and budding optionality."

The analyst also said Regions is better positioned than most other large banks to protect its net interest margin in the prolonged low-rate environment, and that the bank has "room to improve on expenses."

Usdin estimates Regions will earn 92 cents a share this year, with EPS declining to 85 cents in 2014.

RF Chart RF data by YCharts

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

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

>Contact by Email.

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.

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