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Truist Financial Corporation (TFC) Up 12.8% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Truist Financial Corporation (TFC - Free Report) . Shares have added about 12.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Truist Financial's Q4 Earnings Beat Estimates as Provisions Fall
Truist Financial’s fourth-quarter 2020 adjusted earnings of $1.18 per share easily outpaced the Zacks Consensus Estimate of 99 cents. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 21.6%.
Results benefited from stable NII, rise in fee income and lower provision for credit losses. Also, improvement in deposit balance was a tailwind. However, rise in operating expenses, fall in loan balance and lower rates were the undermining factors.
After considering non-recurring items, net income available to common shareholders (GAAP basis) was $1.23 billion or 90 cents per share, up from $1.07 billion or 79 cents per share in the prior quarter.
In 2020, adjusted earnings per share of $3.80 beat the consensus estimate of $3.63 but was down 29.5% year over year. Net income available to common shareholders (GAAP basis) was $4.18 billion or $3.08 per share compared with $3.03 billion or $3.71 per share in 2019.
Revenues & Expenses Rise
Total revenues in the reported quarter (on a tax-equivalent basis) were $5.68 billion, up 1.4% sequentially. Also, the top line beat the Zacks Consensus Estimate of $5.42 billion.
In 2020, total revenues (on a tax-equivalent basis) grew 80.3% year over year to $22.83 billion. Also, the top line surpassed the consensus estimate of $22.45 billion.
Tax-equivalent NII was relatively stable on a sequential basis at $3.39 billion.
NIM decreased 2 basis points (bps) sequentially to 3.08%. The decline was due to lower purchase-accounting accretion and lower yield on securities due to the impact of new investments at lower rates.
Non-interest income grew 3.8% from the third quarter to $2.29 billion. The prior quarter included securities gains of $104 million. Excluding this, adjusted non-interest income rose 8.5%.
Non-interest expenses were $3.83 billion, up 2.1% from the prior quarter. Adjusted expenses declined nearly 1% to $3.17 billion.
Adjusted efficiency ratio was 55.9%, down from 57.3% in the third quarter. A fall in efficiency ratio indicates improvement in profitability.
As of Dec 31, 2020, total average deposits were $375.3 billion, up almost 1% from the previous quarter end. Average total loans and leases of $308.2 billion declined 2.4%.
Credit Quality: Mixed Bag
As of Dec 31, 2020, total non-performing assets (NPAs) were $1.39 billion, up 5.6% sequentially. As a percentage of total assets, NPAs were 0.27%, increasing 1 bp from the prior quarter.
Also, allowance for loan and lease losses was 1.95% of total loans and leases held for investment, which increased 4 bps. However, net charge-offs were 0.27% of average loans and leases, down 15 bps, sequentially. Further, provision for credit losses declined 58% to $177 million.
Robust Profitability & Capital Ratios
At the end of the reported quarter, return on average assets was 1.05%, up from 0.91% in the prior quarter. Return on average common equity was 7.88%, up from 6.87% in the third quarter of 2020.
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 12.1% compared with 12.2% recorded in the prior quarter. Common equity Tier 1 ratio was 10% as of Dec 31, 2020, on par with the third-quarter 2020 level.
First Quarter 2021 Outlook
On a sequential basis, management expects taxable equivalent revenues (excluding one-time security gains) to be down 3-5%, mainly due to purchase accounting loss and fewer days. Reported NIM is projected to be down 2-4 bps and core NIM is likely to be flat sequentially.
Core non-interest expenses (excluding merger costs and amortization) are expected to be down 2-4% due to lower personnel expense. Additionally, the company plans to close 226 branches during the quarter.
NCOs are projected between 30 bps and 45 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 11.85% due to these changes.
VGM Scores
Currently, Truist Financial Corporation has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Truist Financial Corporation (TFC) Up 12.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Truist Financial Corporation (TFC - Free Report) . Shares have added about 12.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Truist Financial Corporation due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Truist Financial's Q4 Earnings Beat Estimates as Provisions Fall
Truist Financial’s fourth-quarter 2020 adjusted earnings of $1.18 per share easily outpaced the Zacks Consensus Estimate of 99 cents. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 21.6%.
Results benefited from stable NII, rise in fee income and lower provision for credit losses. Also, improvement in deposit balance was a tailwind. However, rise in operating expenses, fall in loan balance and lower rates were the undermining factors.
After considering non-recurring items, net income available to common shareholders (GAAP basis) was $1.23 billion or 90 cents per share, up from $1.07 billion or 79 cents per share in the prior quarter.
In 2020, adjusted earnings per share of $3.80 beat the consensus estimate of $3.63 but was down 29.5% year over year. Net income available to common shareholders (GAAP basis) was $4.18 billion or $3.08 per share compared with $3.03 billion or $3.71 per share in 2019.
Revenues & Expenses Rise
Total revenues in the reported quarter (on a tax-equivalent basis) were $5.68 billion, up 1.4% sequentially. Also, the top line beat the Zacks Consensus Estimate of $5.42 billion.
In 2020, total revenues (on a tax-equivalent basis) grew 80.3% year over year to $22.83 billion. Also, the top line surpassed the consensus estimate of $22.45 billion.
Tax-equivalent NII was relatively stable on a sequential basis at $3.39 billion.
NIM decreased 2 basis points (bps) sequentially to 3.08%. The decline was due to lower purchase-accounting accretion and lower yield on securities due to the impact of new investments at lower rates.
Non-interest income grew 3.8% from the third quarter to $2.29 billion. The prior quarter included securities gains of $104 million. Excluding this, adjusted non-interest income rose 8.5%.
Non-interest expenses were $3.83 billion, up 2.1% from the prior quarter. Adjusted expenses declined nearly 1% to $3.17 billion.
Adjusted efficiency ratio was 55.9%, down from 57.3% in the third quarter. A fall in efficiency ratio indicates improvement in profitability.
As of Dec 31, 2020, total average deposits were $375.3 billion, up almost 1% from the previous quarter end. Average total loans and leases of $308.2 billion declined 2.4%.
Credit Quality: Mixed Bag
As of Dec 31, 2020, total non-performing assets (NPAs) were $1.39 billion, up 5.6% sequentially. As a percentage of total assets, NPAs were 0.27%, increasing 1 bp from the prior quarter.
Also, allowance for loan and lease losses was 1.95% of total loans and leases held for investment, which increased 4 bps. However, net charge-offs were 0.27% of average loans and leases, down 15 bps, sequentially. Further, provision for credit losses declined 58% to $177 million.
Robust Profitability & Capital Ratios
At the end of the reported quarter, return on average assets was 1.05%, up from 0.91% in the prior quarter. Return on average common equity was 7.88%, up from 6.87% in the third quarter of 2020.
As of Dec 31, 2020, Tier 1 risk-based capital ratio was 12.1% compared with 12.2% recorded in the prior quarter. Common equity Tier 1 ratio was 10% as of Dec 31, 2020, on par with the third-quarter 2020 level.
First Quarter 2021 Outlook
On a sequential basis, management expects taxable equivalent revenues (excluding one-time security gains) to be down 3-5%, mainly due to purchase accounting loss and fewer days. Reported NIM is projected to be down 2-4 bps and core NIM is likely to be flat sequentially.
Core non-interest expenses (excluding merger costs and amortization) are expected to be down 2-4% due to lower personnel expense. Additionally, the company plans to close 226 branches during the quarter.
NCOs are projected between 30 bps and 45 bps.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 11.85% due to these changes.
VGM Scores
Currently, Truist Financial Corporation has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Truist Financial Corporation has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.