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Regions Financial (RF) Displays Organic Growth: Time to Hold?

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During the March-end quarter, the Finance sector turned out to be one of the best performers. So, we thought of bringing up a stock from the sector that reflects strong fundamentals and solid long-term growth opportunities.

Regions Financial Corporation (RF - Free Report) is one such stock. Though the company displays mixed prospects for revenue growth, cost-saving initiatives are anticipated to support bottom-line growth. However, lack of diversification in loan portfolio and litigation issues remain concerns.

Improved funding mix augurs well and Regions Financial continues to benefit from lower deposit costs, reduced non-accrual levels and a decline in low-yielding interest earning assets. Net interest margin (NIM) has displayed an increasing trend for the last few years. It improved in 2016 (3.14%), 2017 (3.33%) and 2018 (3.50%), with the trend continuing in the first three months of 2019. Notably, improvements in deposit and borrowing costs have eased NIM compression to some extent.

However, with respect to NIM, rates consistent with the current yield curve and moderate balance sheet growth are expected to generate a relatively stable to modestly lower full-year margin, implying moderate margin compression for the rest of this year.
Regions Financial also remains focused on growth through inorganic routes. For the last few years, the company has been on an acquisition spree in efforts to boost its diversified business. Notably, Regions Financial continues to take actions with respect to the Simplify and Grow initiative, including streamlining its structure and refining the branch network while making investments in new technologies, delivery channels and other drivers of growth.

Owing to the current global macroeconomic headwinds, management’s plan to curb $400 million of core expenses by 2019 is on track. Further, it plans to consolidate branches in order to help the bank reduce costs.

Regions Financial has been undertaking initiatives to boost its revenues but the muted growth in non-interest income has been weighing over the bank’s top line for the last few years. Notably, fee income witnessed a negative CAGR of 3.2% for the three years (2016-2018), with the trend continuing in first-quarter 2019, mainly attributed to falling mortgage income.

Among other stocks worth considering, First Business Financial Services, Inc. (FBIZ - Free Report) , Franklin Resources, Inc. (BEN - Free Report) and 1st Source Corporation (SRCE - Free Report) have been witnessing upward estimate revisions, for the past 60 days.

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