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Balanced View on Fifth Third

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On Jun 11, 2013, we reiterated our long-term recommendation on Fifth Third Bancorp (FITB - Free Report) at Neutral based on its diversified traditional banking platform, organic growth and strong capital base. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.

Why Neutral?

Fifth Third’s first-quarter 2013 adjusted earnings per share came in at 44 cents, beating the Zacks Consensus Estimate by a nickel. The results also came ahead of the year-ago earnings of 36 cents.

Improved credit quality aided by lower provision for loans and leases and a strong capital position were the positives for the quarter. Moreover, increase in loans and deposits reflect the company’s organic growth. However, a decline in the top line and escalated non-interest expenses remain major concerns.

As a significant capital market player, Fifth Third could benefit from the material growth of the global capital markets. Its strong consumer and commercial banking franchise and growing asset management business are also set to benefit from the cyclical recovery in the U.S. economy. Management’s preference for organic growth over acquisitions will be beneficial with respect to cost and execution risk, over the long term.

However, the sluggish economic growth and the low interest-rate environment are concerns for Fifth Third’s top-line expansion. Management expects second-quarter net interest income to decline between $5 million to $10 million.

For Fifth Third, the Zacks Consensus Estimate for 2013 jumped 6.7% to $1.75 as 18 out of 20 estimates moved higher over the last 60 days. For 2014, 14 out of 19 estimates moved north, lifting the Zacks Consensus Estimate by 3.0% to $1.74 over the same time frame. Hence, Fifth Third carries a Zacks Rank #2 (Buy).

Other Major Banks to Consider

Some major banks that are also worth considering include The PNC Financial Services Group, Inc. (PNC - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Comerica Incorporated (CMA - Free Report) . All the 3 banks hold a Zacks Rank #2.

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