Betting on BB&T

NEW YORK (TheStreet)- On more than one occasion, I've sang the praises of BB&T (BBT) to just about anyone who cared to listen.

While this regional bank does not carry the high profile of JPMorgan Chase ( JPM) or the consistency of Wells Fargo ( WFC), BB&T was not bruised like many of its peers during the financial crisis.

Even though the stock has stagnated recently, the company does possess a solid operation and considerable value.

Investors, however, need more growth to justify hopping onboard. Last month's first-quarter earnings report offers clues about where BB&T is headed and whether its stock is worth a shot.

Mixed First Quarter

Not much was expected from BB&T, which was a good thing because there was little to get excited about.

The bank had a tough time with lending activity, which again was lethargic - albeit, consistent with the overall sector.

Despite the weak lending environment, BB&T s managed to report a 4% increase in operating revenue.

Net interest income fell 1% year over year and 4% from the prior quarter. Ordinarily that would be a concern, but BB&T's results were actually better than those of JPMorgan, whose net interest income fell 6% year-over-year and 2% from the prior quarter.

Other than U.S. Bancorp ( USB), which saw a 1% increase, there weren't many banks that saw an uptick in net interest income. So I'm willing to excuse BB&T here. But that needs to improve to support a higher valuation.

BB&T posted better-than-expected results in fee income, which rose 11% year over year. That is despite weak results in mortgage banking. Fee income is an area where BB&T is outperforming the likes of Bank of America ( BAC) and U.S. Bancorp.

These numbers weren't breathtaking. But they weren't horrible, either. The good news is that management expects better performances in the future and seemed to be optimistic about the rest of the year.

That should bode well for BB&T's stock, especially if BB&T can reverse its weakness in residential and commercial lending.

BB&T also has to perform better in its cost-cutting measures. While management did well the first quarter in lowering expenses by 3%, it was not as meaningful as U.S. Bancorp, which was able to post a 1% increase in pre-provision net revenue (PPNR) - a measure of operating income - due to strong expense management.

BB&T posted an 8% year-over-year decline in PPNR. That's not horrible, but still it was the worst of all the major banks that have reported so far. Management has some work to do in this area.

Still, management has a strong track record. So I don't think these hiccups will linger for long. The bank has been willing to take chances on growth opportunities, including its acquisition of BankAtlantic last year.

I don't doubt that the next quarter will be better. The 8% decline in PPNR, however, remains a sticking point.

The stock appears to be fairly valued with a price-to-earnings ratio of 13.68, based on Friday's close of $32.55.

Can it go higher? I think it can. But each uptick will be met with resistance.

While I do believe that potential operational improvements are not yet priced into the stock, I don't see any justification to rush to take a position here yet. At least not until management can prove that it can get lending going again.

At the time of publication, the author held no position in any of the stocks mentioned.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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