Why Fifth Third (FITB) Was Upgraded

NEW YORK (TheStreet) -- Fifth Third Bancorp (FITB) was upgraded to "buy" from "neutral" by Bank of America/Merrill Lynch Thursday.

Fifth Third gained 1.1% to $20.87 in morning trading.

The bank raised its price target for Fifth Third to $24 from $23 along with the upgrade. Analyst Erika Najarian said the upgrade is due to stronger growth relative to other regional banks.

Najarian wrote, "We believe the market underappreciated FITB's solid 4Q13 results, and importantly, its outlook on loan growth and expense control during a particularly concentrated reporting season (as did we). FITB trades at a 1x discount to large regional peers on P/E, despite our outlook for the company to outpace these same peers in EPS growth in '14 and '15."

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Separately, TheStreet Ratings team rates FIFTH THIRD BANCORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate FIFTH THIRD BANCORP (FITB) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, expanding profit margins, notable return on equity and increase in net income. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, FITB's share price has jumped by 30.06%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FITB should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The gross profit margin for FIFTH THIRD BANCORP is currently very high, coming in at 90.91%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 23.63% trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, FIFTH THIRD BANCORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • FITB, with its decline in revenue, slightly underperformed the industry average of 0.0%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
  • FIFTH THIRD BANCORP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, FIFTH THIRD BANCORP increased its bottom line by earning $2.01 versus $1.66 in the prior year. For the next year, the market is expecting a contraction of 12.9% in earnings ($1.75 versus $2.01).

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