A month has gone by since the last earnings report for SunTrust (STI - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is SunTrust due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
SunTrust Q1 Earnings Top on Higher Revenues, Costs Up
SunTrust’s first-quarter 2019 adjusted earnings of $1.33 per share outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line was 3% above the prior-year quarter figure.
Results were driven by rise in net interest income and decent loan growth. However, a decline in non-interest income, higher operating expenses and rise in credit costs were the undermining factors.
After considering merger-related costs associated with proposed merger with BB&T Corp., net income available to common shareholders was $554 million or $1.24 per share, down from $612 million or $1.29 per share in the prior-year quarter.
Revenues & Expenses Rise
Total revenues were $2.33 billion, up 4% year over year. Also, the figure beat the Zacks Consensus Estimate of $2.30 billion.
Net interest income increased 7% year over year to $1.54 billion. Net interest margin (FTE basis) was up 3 basis points (bps) to 3.27%.
Non-interest income was $784 million, down 2% from the prior-year quarter. This fall was mainly due to lower investment banking income, service charges on deposit accounts and other non-interest income.
Non-interest expenses increased 5% from the year-ago quarter to $1.49 billion. This included merger-related charges of $45 million. Excluding this charge, expenses rose 2% mainly due to higher outside processing and software costs.
Credit Quality: A Mixed Bag
Total non-performing assets were $648 million as of Mar 31, 2019, down 17% from the prior-yearquarter end. Non-performing loans to total loans held for investment decreased 16 bps year over year to 0.34%.
However, the rate of net charge-offs to total average loans held for investment increased 4 bps to 0.26%. Also, provision for credit losses increased substantially from the year-ago quarter to $153 million, driven by strong loan growth.
Strong Balance Sheet
As of Mar 31, 2019, SunTrust had total assets of $220.4 billion while shareholders’ equity was $24.8 billion, representing 11% of total assets.
As of Mar 31, 2019, loans held for investments were $155.23 billion, up 2% from the priorquarter end. However, total consumer and commercial deposits declined marginally from the previous quarter to $161.09 billion.
SunTrust’s estimated common equity Tier 1 ratio under Basel III was 9.11% as of Mar 31, 2019.
During the reported quarter, the company bought back shares worth $250 million.
The company expects NIM in second-quarter 2019 to decline by 2-3 bps on a sequential basis.
Management expects merger-related costs on a standalone basis of approximately $10 million in each quarter, going forward.
Management expects NCO ratio to be 25-30 bps in 2019. Provisions are expected to modestly exceed NCOs, given the loan growth, with quarterly variability.
In 2019, the company expects effective tax rate on a reported basis to be 18%, and 20% on a FTE basis.
The company targets to achieve tangible efficiency ratio of 56-58% over the medium term.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, SunTrust has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, SunTrust has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.