Fifth Third Bancorp (FITB - Free Report) is optimistic about its growth prospects and has thus raised long-term financial targets, which were announced at an investors conference held recently. The key reason behind the positive expectations is the bank’s planned acquisition of Chicago-based MB Financial, per Fifth Third’s chief executive officer.
In May 2018, Fifth Third entered into a $4.7 billion stock-cash acquisition deal with MB Financial, which is expected to be completed by the first quarter of 2019. Notably, successful integration of MB Financial and realization of expected financial benefits remain a strategic priority for Fifth Third.
New Financial Targets
Further, the company increased its return on tangible common equity target from 12-14% to 16% for the 2019 after considering rate hikes and tax law changes. It is further expected to increase to 18% in 2020, including 2% positive impact of the acquisition.
Also, Fifth Third has a target of 1.35-1.45% for return on assets (ROA) by the end of next year, up from 1.1-1.3% previously expected. ROA is expected to increase to 1.55-1.65% by 2020. Also, efficiency ratio is expected to fall to low-50% in 2020 from 57% expected in 2019.
Fifth Third expects loan growth, especially consumer loans, to be a major tailwind in 2019. Notably, commercial loans & leases are expected to increase nearly 5% in 2019, sequentially. Expense growth is expected to remain under control in 2019.
Also, the company’s is focused on implementing the remaining North Star initiatives in order to achieve standalone financial targets.
Fifth Third’s focus on strategic investments through North Star initiatives, which are expected to result in revenue growth, expense savings and operational excellence, is a key positive. Also, the company remains focused on creating long-term shareholder value by tapping profitable organic growth opportunities.
Shares of Fifth Third have lost 11.5% over the past six months compared with 9.6% decline recorded by the industry it belongs to.
The stock currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
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