It has been about a month since the last earnings report for BB&T Corporation . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.
BB&T Beats Q1 Earnings on Higher Revenues, Costs Rise
BB&T’s first-quarter 2017 adjusted earnings of $0.74 per share surpassed the Zacks Consensus Estimate by a penny.
Better-than-expected results were primarily driven by an improvement in both net interest income and non-interest income. Deposits witnessed a decent growth in the quarter. Also, credit quality improved. However, escalated expenses remained a major headwind.
Results excluded certain merger-related and restructuring charges and other non-recurring items. After considering these, net income available to common shareholders was $378 million or $0.46 per share, compared with $527 million or $0.67 per share in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Total revenue for the quarter came in at $2.78 billion, up 9.2% year over year. Moreover, the figure marginally surpassed the Zacks Consensus Estimate of $2.77 billion.
Tax-equivalent net interest income rose 5.2% from the prior-year quarter to $1.65 billion. Also, net interest margin rose 3 basis points (bps) from the prior-year quarter to 3.46%.
Non-interest income jumped 15.3% year over year to $1.17 billion. Rise in almost all fee income components, except income from bank-owned life insurance, and investment banking and brokerage fees and commissions, led to the growth. Also, the quarter witnessed nil net securities gains and net FDIC loss share income.
Non-interest expense of $2.1 billion was up 36.1% from the year-ago quarter. This increase was driven by a rise in all cost components other than loan-related expense. Moreover, the quarter witnessed huge loss on early extinguishment of debt.
BB&T’s adjusted efficiency ratio came in at 58.0%, down from 58.8% in the prior-year quarter. A fall in efficiency ratio indicates a rise in profitability.
As of Mar 31, 2017, total deposits were $161.3 billion, up from $160.2 billion in the prior-quarter. However, total loans and leases were $143.9 billion, down 0.8% sequentially.
Credit Quality Improved
As of Mar 31, 2017, total non-performing assets (NPAs) were $801 million, down 11.3% year over year. As a percentage of total assets, NPAs came in at 0.36%, down 6 bps year over year. Moreover, net charge-offs (NCOs) were 0.42% of average loans and leases, down 4 bps year over year.
Also, during the quarter, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, down 6 bps year over year. Further, provision for credit losses was $148 million at the end of the quarter, down 19.6 % year over year.
Profitability & Capital Ratios Deteriorated
At the end of the reported quarter, return on average assets was 0.79%, down from 1.09% in the prior-year quarter. Return on average common equity declined to 5.72% from 8.45% as of Mar 31, 2016.
As of Mar 31, 2017, Tier 1 risk-based capital ratio was 12.0%, compared with 12.2% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.1% as of Mar 31, 2017.
Share Repurchases
During the reported quarter, BB&T repurchased 4.4 million shares through open-market purchases.
Second-Quarter 2017 Outlook
On a sequential basis, management projects core NIM to increase 2–4 bps, primarily attributable to Fed rate hike in Mar 2017. On the other hand, GAAP NIM is projected to be flat sequentially on the basis of a reduction in purchase accounting accretion.
Fee income is expected to be up 6-8% year over year. Also, NII is projected to improve in the range of 2-4%, given the improved margin assumption.
Excluding merger-related and restructuring charges, management expects expenses to remain flat or increase 2% from the prior-year quarter.
Management expects the effective tax rate to be in 30% range.
Going forward, based on the company’s investments in artificial intelligence and robotics to improve their operating efficiency, management is optimistic about its long-term operating leverage and would simultaneously reduce expenses on their traditional methodologies.
Management expects Specialized Lending segment’s net income to improve driven by strong loan and production growth.
On an annualized basis, management expects average loans to grow 1-3% sequentially driven by improvement in commercial, specialized and retail loan portfolios as compared with the first quarter level. Notably from the prior quarter, excluding optimizing portfolio, average loan growth is anticipated to be in the range of 5-7%.
Management projects NCOs to be in the range of 35–45 bps (on the assumption that there is no deterioration in the economy), while NPA levels are expected to remain stable on a sequential basis.
Also, loan loss provisions are expected to match NCOs in addition to providing for loan growth.
Given the company’s strong capital position, management plans to significantly increase 2017 capital plan payout, subject to regulatory approval.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to seven lower. While looking back an additional 30 days, we can see even more downward momentum. There have been four moves higher compared to eight lower two months ago.
VGM Scores
At this time, BB&T's stock has a poor score of 'F', on both growth and momentum front. Following a similar course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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BB&T (BBT) Down 3.3% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for BB&T Corporation . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 catalysts.
BB&T Beats Q1 Earnings on Higher Revenues, Costs Rise
BB&T’s first-quarter 2017 adjusted earnings of $0.74 per share surpassed the Zacks Consensus Estimate by a penny.
Better-than-expected results were primarily driven by an improvement in both net interest income and non-interest income. Deposits witnessed a decent growth in the quarter. Also, credit quality improved. However, escalated expenses remained a major headwind.
Results excluded certain merger-related and restructuring charges and other non-recurring items. After considering these, net income available to common shareholders was $378 million or $0.46 per share, compared with $527 million or $0.67 per share in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Total revenue for the quarter came in at $2.78 billion, up 9.2% year over year. Moreover, the figure marginally surpassed the Zacks Consensus Estimate of $2.77 billion.
Tax-equivalent net interest income rose 5.2% from the prior-year quarter to $1.65 billion. Also, net interest margin rose 3 basis points (bps) from the prior-year quarter to 3.46%.
Non-interest income jumped 15.3% year over year to $1.17 billion. Rise in almost all fee income components, except income from bank-owned life insurance, and investment banking and brokerage fees and commissions, led to the growth. Also, the quarter witnessed nil net securities gains and net FDIC loss share income.
Non-interest expense of $2.1 billion was up 36.1% from the year-ago quarter. This increase was driven by a rise in all cost components other than loan-related expense. Moreover, the quarter witnessed huge loss on early extinguishment of debt.
BB&T’s adjusted efficiency ratio came in at 58.0%, down from 58.8% in the prior-year quarter. A fall in efficiency ratio indicates a rise in profitability.
As of Mar 31, 2017, total deposits were $161.3 billion, up from $160.2 billion in the prior-quarter. However, total loans and leases were $143.9 billion, down 0.8% sequentially.
Credit Quality Improved
As of Mar 31, 2017, total non-performing assets (NPAs) were $801 million, down 11.3% year over year. As a percentage of total assets, NPAs came in at 0.36%, down 6 bps year over year. Moreover, net charge-offs (NCOs) were 0.42% of average loans and leases, down 4 bps year over year.
Also, during the quarter, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, down 6 bps year over year. Further, provision for credit losses was $148 million at the end of the quarter, down 19.6 % year over year.
Profitability & Capital Ratios Deteriorated
At the end of the reported quarter, return on average assets was 0.79%, down from 1.09% in the prior-year quarter. Return on average common equity declined to 5.72% from 8.45% as of Mar 31, 2016.
As of Mar 31, 2017, Tier 1 risk-based capital ratio was 12.0%, compared with 12.2% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.1% as of Mar 31, 2017.
Share Repurchases
During the reported quarter, BB&T repurchased 4.4 million shares through open-market purchases.
Second-Quarter 2017 Outlook
On a sequential basis, management projects core NIM to increase 2–4 bps, primarily attributable to Fed rate hike in Mar 2017. On the other hand, GAAP NIM is projected to be flat sequentially on the basis of a reduction in purchase accounting accretion.
Fee income is expected to be up 6-8% year over year. Also, NII is projected to improve in the range of 2-4%, given the improved margin assumption.
Excluding merger-related and restructuring charges, management expects expenses to remain flat or increase 2% from the prior-year quarter.
Management expects the effective tax rate to be in 30% range.
Going forward, based on the company’s investments in artificial intelligence and robotics to improve their operating efficiency, management is optimistic about its long-term operating leverage and would simultaneously reduce expenses on their traditional methodologies.
Management expects Specialized Lending segment’s net income to improve driven by strong loan and production growth.
On an annualized basis, management expects average loans to grow 1-3% sequentially driven by improvement in commercial, specialized and retail loan portfolios as compared with the first quarter level. Notably from the prior quarter, excluding optimizing portfolio, average loan growth is anticipated to be in the range of 5-7%.
Management projects NCOs to be in the range of 35–45 bps (on the assumption that there is no deterioration in the economy), while NPA levels are expected to remain stable on a sequential basis.
Also, loan loss provisions are expected to match NCOs in addition to providing for loan growth.
Given the company’s strong capital position, management plans to significantly increase 2017 capital plan payout, subject to regulatory approval.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions higher for the current quarter compared to seven lower. While looking back an additional 30 days, we can see even more downward momentum. There have been four moves higher compared to eight lower two months ago.
BB&T Corporation Price and Consensus
BB&T Corporation Price and Consensus | BB&T Corporation Quote
VGM Scores
At this time, BB&T's stock has a poor score of 'F', on both growth and momentum front. Following a similar course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.