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Analyst Blog

On Aug 26, 2013, we reaffirmed our Neutral recommendation on SunTrust Banks, Inc. (STI - Analyst Report). This was based on the company’s strong second quarter 2013 results. However, the company’s exposure to risky assets, limited margin growth and persistent regulatory pressures remain the matters of concern.

Why Neutral?

On Jul 19, SunTrust reported second-quarter 2013 earnings per share of 68 cents, beating the Zacks Consensus Estimate by a penny. The results came on the back of reduced expenses, partially offset by a decline in the top line. The quarter also witnessed stable asset quality and capital ratios.

The Zacks Consensus Estimate for 2013 advanced 0.7% to $2.73 per share over the last 60 days. Further, for 2014, the Zacks Consensus Estimate increased 1.4% to $2.96 per share over the same time period. As a result, SunTrust currently carries a Zacks Rank #3 (Hold).

SunTrust is an asset for yield-seeking investors. In consistence with its legacy of share buybacks and dividend hikes, the company raised its dividend again in April. Moreover, SunTrust aims to operate more efficiently by focusing on increasing revenues and controlling expenses. With further improvement in market conditions, enhanced loan and deposit growth is expected to boost profitability in the long run.

On the flip side, SunTrust has been facing stiff competition regarding deposits in the recent quarters. Further, SunTrust’s exposure to C&I, commercial real estate and commercial construction loans make it vulnerable to the volatile housing market. Moreover, stricter regulatory requirements are expected to considerably reduce the company’s flexibility with respect to its business investments and lending volume.

Other Stocks Worth Considering

Some better performing banks include BankUnited, Inc. (BKU - Analyst Report), Fifth Third Bancorp (FITB - Analyst Report) and The PNC Financial Services Group, Inc. (PNC - Analyst Report). While BankUnited has a Zacks Rank #1 (Strong Buy), both Fifth Third and PNC Financial carry a Zacks Rank #2 (Buy).

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