BB&T Leads Banks Higher on Mixed Economic Data

NEW YORK (TheStreet) -- BB&T Corp. (BBT) was the banking sector leader on Thursday, with shares rising 2% to close at $35.37.

The broad indices ended with losses, while the KBW Bank Index I:BKX rose 0.5% to 66.78, with all but eight of the index components ending with gains.

Thursday's economic news was also mixed.  The Census Bureau reported that U.S. retail sales during November rose 0.7% from October to $432.3 billion.  The increase was higher than the consensus estimate of a 0.6% increase among economists polled by Reuters.  November's retail sales were up 4.7% from a year earlier.  The Census Bureau also made an upward revision to their October retail sales growth figure, showing an increase of 0.6% from September, when the original estimate was an increase of 0.4%.

Excluding auto sales, retail sales in November were up 4% from October to $349.0 billion. Economists on average had expected these sales to increase by just 0.2%.

Also on Thursday, the Labor Department said first-time U.S. unemployment claims for the week ended Dec. 7 rose by 68,000 to 368,000, from the previous week's revised upwardly revised figure of 300,000.  Economists had expected initial claims for last week to come in at 330,000, reflecting typical holiday season volatility.

The continuing increase in retail sales, along with last week's huge revision of estimated third-quarter U.S. gross domestic product growth to an annual rate of 3.6% from the previous estimate of 2.8%, along with decline in the unemployment rate to 7% in November from 7.3%, will all be factored into the discussions of the Federal Open Market Committee when it meets on Dec 17-18.

A bull market can easily be spooked by fears of higher interest rates, and the Federal Reserve will eventually slow its massive "QE3" balance sheet expansion, that has been meant to hold long-term rates down.  The central bank has been making net monthly purchases of $85 billion in long-term U.S. Treasury bonds and agency mortgage-backed securities since September 2012.

According to Sterne Agee chief economist Lindsey Piegza, the November retail sales growth in part reflected a "temporary reprieve from pump prices," as well as the rise in home prices and the bull market for stocks.  However, Piegza still sees consumers "losing momentum with growth falling from a peak of near 9% in 2011."

"Consumers will need sustained job creation and income growth, which unfortunately do not go hand in hand," Piegza wrote in a client note on Thursday.  She predicted last week that the improved GDP and unemployment rate wouldn't be enough for the Fed to decide to taper bond purchases in December.

BB&T Corp.

Shares of BB&T of Winston-Salem, N.C. have returned 26% this year, following a 19% return during 2012.  The shares trade for 2.1 times tangible book value, according to Thomson Reuters Bank Insight, for 11.7 times the consensus 2014 earnings estimate of $3.02 a share, and for 10.7 times the consensus 2015 EPS estimate of $3.31.

Based on a quarterly payout of 23 cents, the shares have a dividend yield of 2.60%.

Following a year that saw no increased return of capital to BB&T's investors following the Federal Reserve's 2013 round of stress tests, investors are expecting a different result following the next round of stress tests in March.  KBW analyst Christopher Mutascio estimates BB&T in the second quarter of 2014 will raise the quarterly dividend to 26 cents, while also receiving approval from the Fed for share repurchases of up to $462 million through the first quarter of 2015.

Mutascio rates BB&T "market perform," with a $37 price target.

BB&T CEO Kelly King on Wednesday said he was "feeling pretty positive" about the improving economy and regulatory environment for banks, but that loan growth would be "flattish" for the fourth quarter.  On the other hand, he said a the Goldman Sachs Financial Services Conference in New York that "November was our second highest loan production month in the last 6 months and so we are beginning to feel some excitement out there."

Looking ahead to 2014, King expressed plenty of enthusiasm about BB&T's commercial banking foray in Texas, and said that "we feel pretty good about momentum."

BBT Chart data by YCharts

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.

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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