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S&P 500 Banks Make a Resounding Come Back QTD: 3 Solid Picks
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Similar to all the industries/sectors in the S&P 500 Index, banks too had a rough start to 2022 and witnessed historically low-price performances. Nonetheless, since July, bank stocks have been showing signs of a rebound.
In the quarter-to-date period, the S&P Regional Banks Select Industry Index has rallied 12%, outperforming the S&P 500 Index and the Zacks Finance sector growth of 9.3% and 6.9%, respectively. Of the constituent banks in the Index, we have picked – Regions Financial Corporation (RF - Free Report) , M&T Bank Corporation (MTB - Free Report) and Comerica Incorporated (CMA - Free Report) – as these have not only outperformed the S&P 500 but are also fundamentally strong to withstand any macroeconomic downturn.
As the banks’ financial performance is tied to that of the economy, the near-term prospects look decent. The interest rate hikes and solid loan demand are expected to support banks this year. Also, several macroeconomic factors like job additions, a slight fall in inflation and gas prices and improving consumer sentiments are pointing toward an improving U.S. economy.
Yet, the long-term prospects look a bit dim. There’s a huge chance that the economy might be heading toward a recession. But the Federal Reserve’s stress test for 2022 shows that the major banks will be able to keep lending even during the severe downturn. Also, the banks would have roughly twice the amount of capital with them than required under the rules. This will likely provide a cushion to banks against unexpected losses.
Thus, this is the right time to invest in bank stocks that are expected to keep growing even in the face of an economic slowdown. The above-mentioned three banks were chosen with the help of the Zacks Stocks Screener. These stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
QTD Price Performance
Image Source: Zacks Investment Research
Now, let’s discuss these stocks in detail:
Regions Financial is a Birmingham, AL-based financial holding company providing retail and commercial and mortgage banking, and other financial services. RF operates through four business segments – Corporate Bank, Consumer Bank, Wealth Management and Others.
Decent economic growth and a strong lending pipeline are expected to drive loan growth, thereby aiding the company's net interest income (NII). Further, RF continues to take actions with respect to making investments in talent and technology to support financials.
Regions Financial also keeps exploring opportunities for bolt-on buyouts, primarily in mortgage servicing rights, besides adding capabilities in the wealth management unit. As RF is committed to diversifying its revenue streams, such endeavors will likely support growth in the long term.
Regions Financial has a solid balance sheet position. Also, its senior unsecured debt enjoys investment-grade credit rating of BBB+ from both Standard & Poor’s, and Fitch. This renders the company favorable access to debt at attractive rates. Further, its robust cash position shows the ability to meet debt obligations if the economic situation worsens.
The company’s strong balance sheet and consistent earnings make its capital-deployment activities sustainable. The bank has a dividend yield of 3.01% and a five-year annualized dividend growth of 14.14%. At present, RF's payout ratio is 30% of earnings.
The stock has rallied 18% so far this quarter. While the company’s earnings are projected to witness a year-over-year decline of 6.8%, the same is expected to rise 5.9% for 2023.
M&T Bank Corporation, headquartered in Buffalo, NY, is the holding company for M&T Bank and Wilmington Trust, National Association. MTB operates in New York, MD, New Jersey, PA, Delaware, CT, Virginia, WV and the District of Columbia.
Organic growth, driven by higher fee income, rising rates and solid loans and deposits, will likely continue leading to revenue growth for MTB. The company is growing inorganically backed by a sound liquidity position. The acquisition of People's United Financial (completed this April) is expected to be accretive to its earnings and will result in substantial cost savings.
Further, MTB seems to be well positioned in terms of its liquidity profile and is likely to be able to continue meeting the debt obligations if the economic situation worsens. Also, the bank has come a long way in displaying its capital strength, as indicated by its impressive capital deployment activities. The company has a dividend yield of 2.54% and a five-year annualized dividend growth of 9.92%. Also, MTB's payout ratio is 37% of earnings at present.
In the quarter-to-date period, MTB stock has gained 15.5%. For 2022 and 2023, the company’s earnings are projected to grow 10.2% and 30.7%, respectively, on a year-over-year basis.
Comerica, based in Dallas, TX, is a banking and financial services company. CMA delivers financial services in three primary regional markets — Texas, California and Michigan — as well as Arizona and Florida. It has operations in numerous other U.S. states as well as in Canada and Mexico.
Decent economic growth, higher interest rates and gradually improving loan commitments will support CMA’s NII. Given the aggressive rate hike expectations and solid loan demand, the company is projecting a 31% year-over-year increase in NII (including PPP) this year.
Also, Comerica’s revenues and efficiency improvement initiative – GEAR Up (started in mid-2016) – have been bearing fruits. The company's efforts in product enhancements, improved sales tools and training as well as better customer analytics bode well for robust revenue growth.
Given its ample liquidity, it is less likely to default interest and debt repayments, even if the economic situation worsens. Further, the bank’s capital deployment activities are encouraging. CMA’s improving performance and favorable debt-equity ratio than the industry reflect that its enhanced capital deployment activities are sustainable in the future.
The company has a dividend yield of 3.20% and a five-year annualized dividend growth of 17.45%. Currently, CMA's payout ratio is 40% of earnings.
For 2022, the company’s earnings are projected to witness year-over-year growth of almost 1%. For 2023, earnings are expected to rise 22.4%. CMA’s shares have rallied 12.2% in the quarter-to-date period.
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S&P 500 Banks Make a Resounding Come Back QTD: 3 Solid Picks
Similar to all the industries/sectors in the S&P 500 Index, banks too had a rough start to 2022 and witnessed historically low-price performances. Nonetheless, since July, bank stocks have been showing signs of a rebound.
In the quarter-to-date period, the S&P Regional Banks Select Industry Index has rallied 12%, outperforming the S&P 500 Index and the Zacks Finance sector growth of 9.3% and 6.9%, respectively. Of the constituent banks in the Index, we have picked – Regions Financial Corporation (RF - Free Report) , M&T Bank Corporation (MTB - Free Report) and Comerica Incorporated (CMA - Free Report) – as these have not only outperformed the S&P 500 but are also fundamentally strong to withstand any macroeconomic downturn.
As the banks’ financial performance is tied to that of the economy, the near-term prospects look decent. The interest rate hikes and solid loan demand are expected to support banks this year. Also, several macroeconomic factors like job additions, a slight fall in inflation and gas prices and improving consumer sentiments are pointing toward an improving U.S. economy.
Yet, the long-term prospects look a bit dim. There’s a huge chance that the economy might be heading toward a recession. But the Federal Reserve’s stress test for 2022 shows that the major banks will be able to keep lending even during the severe downturn. Also, the banks would have roughly twice the amount of capital with them than required under the rules. This will likely provide a cushion to banks against unexpected losses.
Thus, this is the right time to invest in bank stocks that are expected to keep growing even in the face of an economic slowdown. The above-mentioned three banks were chosen with the help of the Zacks Stocks Screener. These stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
QTD Price Performance
Image Source: Zacks Investment Research
Now, let’s discuss these stocks in detail:
Regions Financial is a Birmingham, AL-based financial holding company providing retail and commercial and mortgage banking, and other financial services. RF operates through four business segments – Corporate Bank, Consumer Bank, Wealth Management and Others.
Decent economic growth and a strong lending pipeline are expected to drive loan growth, thereby aiding the company's net interest income (NII). Further, RF continues to take actions with respect to making investments in talent and technology to support financials.
Regions Financial also keeps exploring opportunities for bolt-on buyouts, primarily in mortgage servicing rights, besides adding capabilities in the wealth management unit. As RF is committed to diversifying its revenue streams, such endeavors will likely support growth in the long term.
Regions Financial has a solid balance sheet position. Also, its senior unsecured debt enjoys investment-grade credit rating of BBB+ from both Standard & Poor’s, and Fitch. This renders the company favorable access to debt at attractive rates. Further, its robust cash position shows the ability to meet debt obligations if the economic situation worsens.
The company’s strong balance sheet and consistent earnings make its capital-deployment activities sustainable. The bank has a dividend yield of 3.01% and a five-year annualized dividend growth of 14.14%. At present, RF's payout ratio is 30% of earnings.
The stock has rallied 18% so far this quarter. While the company’s earnings are projected to witness a year-over-year decline of 6.8%, the same is expected to rise 5.9% for 2023.
M&T Bank Corporation, headquartered in Buffalo, NY, is the holding company for M&T Bank and Wilmington Trust, National Association. MTB operates in New York, MD, New Jersey, PA, Delaware, CT, Virginia, WV and the District of Columbia.
Organic growth, driven by higher fee income, rising rates and solid loans and deposits, will likely continue leading to revenue growth for MTB. The company is growing inorganically backed by a sound liquidity position. The acquisition of People's United Financial (completed this April) is expected to be accretive to its earnings and will result in substantial cost savings.
Further, MTB seems to be well positioned in terms of its liquidity profile and is likely to be able to continue meeting the debt obligations if the economic situation worsens. Also, the bank has come a long way in displaying its capital strength, as indicated by its impressive capital deployment activities. The company has a dividend yield of 2.54% and a five-year annualized dividend growth of 9.92%. Also, MTB's payout ratio is 37% of earnings at present.
In the quarter-to-date period, MTB stock has gained 15.5%. For 2022 and 2023, the company’s earnings are projected to grow 10.2% and 30.7%, respectively, on a year-over-year basis.
Comerica, based in Dallas, TX, is a banking and financial services company. CMA delivers financial services in three primary regional markets — Texas, California and Michigan — as well as Arizona and Florida. It has operations in numerous other U.S. states as well as in Canada and Mexico.
Decent economic growth, higher interest rates and gradually improving loan commitments will support CMA’s NII. Given the aggressive rate hike expectations and solid loan demand, the company is projecting a 31% year-over-year increase in NII (including PPP) this year.
Also, Comerica’s revenues and efficiency improvement initiative – GEAR Up (started in mid-2016) – have been bearing fruits. The company's efforts in product enhancements, improved sales tools and training as well as better customer analytics bode well for robust revenue growth.
Given its ample liquidity, it is less likely to default interest and debt repayments, even if the economic situation worsens. Further, the bank’s capital deployment activities are encouraging. CMA’s improving performance and favorable debt-equity ratio than the industry reflect that its enhanced capital deployment activities are sustainable in the future.
The company has a dividend yield of 3.20% and a five-year annualized dividend growth of 17.45%. Currently, CMA's payout ratio is 40% of earnings.
For 2022, the company’s earnings are projected to witness year-over-year growth of almost 1%. For 2023, earnings are expected to rise 22.4%. CMA’s shares have rallied 12.2% in the quarter-to-date period.