SunTrust: Upgrade Winner

NEW YORK ( TheStreet) - SunTrust ( STI) of Atlanta was the winner among stocks of large U.S. banks on Friday, with shares rising over 1% to close at $32.91.

The KBW Bank Index ( I:BKX) was down 0.4% to close at 63.16, with all but six of the 24 index components showing declines for the session.

The overall stock market see-sawed and the broad indices nearly flat, after the Department of Labor said that nonfarm payrolls in the United States increased by 169,000 during August, with the national unemployment rate improving slightly to 7.4% from 7.3% in July.

The consensus among analysts polled by Thomson Reuters was for the unemployment rate to remain unchanged and for the job-growth figure to come in at 179,000.

But what really seemed to rile investors was the Labor Department's downward revision of its June nonfarm payroll growth number to 172,000 from 188,000, and the extreme downward revision of the July job-growth number to 104,000 from 162,000.

The Labor department also said that the unemployment rate for 25-34 year olds shot up to 7.8% during August from 7.3% during July, additional uncertainty to the numbers underlining the slow recovery for the housing market and the overall economy.

Investors worried over the scope of the Federal Reserve's expected reduction in long-term bond purchases may have taken solace in the confusing employment numbers. The central bank has been making monthly purchases of $40 billion in long-term mortgage-backed securities and $45 billion in long-term U.S. Treasury securities since last September, as part of its policy to hold-down long-term interest rates, known as "QE3."

The market yield on 10-Year U.S. Treasury bonds was down six basis points to 2.94%, after hitting its highest level in over two years on Thursday.

Investors have pushed the yield on the 10-Year bond up from 1.70% since the end of April, anticipating the Fed's policy change. The Federal Open Market Committee will meet on Sept. 17-18, after which it will announce any change in monetary policy. Some investors are hoping that the decline in mortgage lending volume, along with the mixed bag of employment numbers, might encourage the FOMC to decide on a slight initial reduction in bond purchases.

SunTrust

SunTrust on Friday was upgraded to a "buy" rating from a "neutral" rating by Deutsche Bank analyst Matt O'Connor, who raised his price target for the shares to $39 from $36.00.

O'Connor in a note to clients wrote that SunTrust's stock was trading to a 15% discount to peers, and that coming declines in expenses on nonperforming loans and repossessed real estate will outweigh the expected decline in mortgage origination revenue.

The analyst raised his 2014 earnings estimate for SunTrust to $2.91 a share from $2.75, and raised his 2015 EPS estimate to $3.46 from $3.21.

STI Chart STI data by YCharts

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

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-- 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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