Downward Pull on Regions Fincl

We maintain our Hold recommendation on the shares of Regions Financial Corporation (RF - Analyst Report), an Alabama-based financial holding company. Though the company has started the implementation of its three-year strategic plan, focused on new revenue generation, we have reservations for credit quality issues that continue to overhanging the economy and this company in particular.

RF's exposure to a residential construction portfolio of $6.2 billion and the negative trend of its 90 days past due loan level are of major concern to us at this time. The company's net interest income has been declining for the past two quarters.

RF currently trades at 7.6x the consensus forward estimate, a 35% discount to the peer group median. AmSouth Bancorp merger places RF squarely into the large-cap range, which we had noted represents a downward pull on the multiple, potentially offsetting much of the higher earnings which management hopes to achieve over time.

Our six-month price target of $16.75 per share estimate equates to 0.60x our projected book value per share of $28.00 six months out, or 8.0x our forward estimate for 2008. We view the annual dividend of $1.52 per share as being relatively secure at this point in time, which would imply a 13.6% expected total return over the period.

Read the full analyst report on RF