Why BB&T Is Shifting From Dealmaking to Stock Buybacks

After a flurry of deal activity, BB&T  (BBT)  appears to be taking stock. It's now considering restarting share buybacks for the first time in nine years, analysts say.

This buyback program could boost earnings per share between 2% and 3% per year, analyst Matt O'Connor of Deutsche Bank wrote in a note. He met with BB&T's CFO and COO earlier this week.

"From a high-level point of view, BB&T is very focused on leveraging recently closed acquisitions and recent investments made in systems" to bolster returns regardless of whether the Federal Reserve raises interest rates in the near future, O'Connor wrote.

Analyst Dan Werner of Morningstar agrees.

"I would not look for them to do any more acquisitions this year," Werner says in an interview. "They're busy digesting what they have. They're very careful acquirers. They don't overpay."

BB&T purchased Susquehanna, the Bank of Kentucky and 63 branches from Citigroup  (C)  in 2015. In April, the company closed two more acquisitions, buying National Penn and Swett & Crawford.

"From here, management reiterated a break from deals as it digests and leverages recently closed deals," O'Connor wrote.

Analyst Dick Bove of Rafferty Capital says since BB&T has started to slow its deal activity, he has raised his rating on the company to a buy. 

"It has now stopped making the acquisitions and now focused on making profits," Bove says. "BB&T now is a very interesting stock."

The story of slowing deal activity is true for most large regional banks, Werner says. There are too many moving parts in the industry right now for a company to make a meaningful acquisition, or to consider being acquired itself, he adds.

"I don't see bigger regional banks being very active anytime soon," Werner says, citing issues within the energy and auto industry as well as stricter antitrust regulations as reasons for the slowdown.

Bove agrees. 

"There's not going to be much deal activity at all," he says. "It's not as attractive to buy a traditional bank as it is to buy a fee-based company or business services firm. Those companies get you a higher return on a quicker basis without adding regulatory burden."

Rather than acquisitions, BB&T is likely more focused on the results of federal stress tests and capital-spending reviews, which will be disclosed later this month.

The tests will show whether the bank is able to withstand adverse economic conditions and may determine the level of dividend payout and stock buybacks.

"The overall level of capital return will probably be less because of what they have in store," Werner says.

As for the company's dividend, he doesn't expect it to be higher than 30 cents per share.

"Maybe they're starting it back up because they're getting it integrated and they don't want to sit on too much capital," Werner says. "I think it would be limited."

So should investors look to get into BB&T considering the market -- and the bank's own conditions?

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Werner suggests investors look to the more "tortoise like" companies that take deals and financial decisions "slow and steady." For him, this means investing in banks like BB&T, Wells Fargo  (WFC)  , US Bancorp   (USB)  and TD Bank (TD)  , which he says are solid returners and dividend payers.

BB&T, which has a market cap of $29.51 billion, was trading at $35.75 Friday morning, down 1.2% from yesterday's closing price of $36.18.

See full coverage on the Fed's upcoming interest-rate decisions.

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