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Fifth Third (FITB) Displays Revenue Strength: Time to Hold?

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The Finance sector turned out to be one of the best performers in the April-June quarter. Specifically, benefits from a stabilizing economy and improving interest-rate scenario have well positioned the banking industry. Also, lower commercial tax rates are likely to boost banks’ profitability further.

In addition, relieving banks from some of the stringent requirements of the Dodd-Frank Act has made the companies optimistic of future earnings growth and raised investor sentiment as well. So, we thought of picking a stock from this sector that reflects strong fundamentals and has solid long-term growth opportunities.

Fifth Third Bancorp (FITB - Free Report) is one such stock. While the bank has a record of elevated expenses, its revenue performance and improving efficiency level through the implementation of various strategies will not disappoint investors.

The company rallied 10.8% over the past year compared with 15.9% growth recorded by the industry.


 

Further, its earnings estimates moved slightly downward, for the current year, over the past 30 days, but increased marginally upward for 2019. As a result, the stock carries a Zacks Rank #3 (Hold), at present.

Looking at the fundamentals, Fifth Third has a diverse revenue base which is likely to support its earnings growth. With robust capital levels, the bank continues to focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates.

Additionally, the company remains focused on executing measures, including branch consolidation. Notably, the company plans to close about 100-125 branches over a three-year period. Also, it is focused on strategic investments through North Star initiatives, which are expected to result in revenue growth, expense savings and operational excellence.

With the gradual change in the rate environment, in 2016, 2017 and the first two quarters of 2018, the company reported improving net interest margin (NIM) after witnessing a declining trend for years. Furthermore, net interest income (NII) is anticipated to benefit from loan growth and improved loan yields. NII is expected to be nearly $1.04 billion in third-quarter 2018. NIM is projected to remain flat sequentially.

Nonetheless, persistently rising operating expenses remains a major concern for the company. The company’s ongoing strategic investments in several areas, including technology, may further escalate costs in the near term.

Stocks to Consider

SunTrust Banks, Inc. (STI - Free Report) has been witnessing upward estimate revisions, for the last 60 days. Year to date, the company’s share price has been up more than 15%. It currently flaunts a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions, for the last 60 days. Additionally, the stock has climbed nearly 14.3%, year to date. It sports a Zacks Rank #1, at present.

M&T Bank Corporation (MTB - Free Report) has been witnessing upward estimate revisions, for the last 60 days. Also, this Zacks #2 Ranked company’s shares have risen nearly 3.5%, year to date.

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