Following the failure of First Republic (FRC), regional bank stocks have come under renewed pressure. In The Prudent Speculator’s latest special report, Banking on Value – Revisited, I discuss the latest goings on and separate fact from fiction. I also offer actionable advice from our Value Investing perspective, including three additional undervalued stock selections to go along with the one featured below.
Truist Financial
TFC
The marriage of Southeastern banking leaders BB&T and SunTrust forming Truist in 2019 combined two regional leaders in the Southeast with conservative lending culture, competitive franchises and the potential for cost savings.
TFC earned $1.05 per share in Q1, below the $1.14 expected by analysts, and the company trimmed its outlook for the year amid higher funding costs, which contracted net interest margin by 8 basis points compared to Q4. Of course, the regional bank still expects to grow revenue 5% to 7% this year, though this is down from prior guidance of 7% to 9% growth.
These days, many naturally are questioning the viability of the regional banks, with TFC CEO Bill Rogers recently explaining, “In a challenging and unique quarter for the banking industry, Truist demonstrated strength and leadership that reflects our diverse business model, granular and relationship-oriented deposit base, and strong capital and liquidity position.”
Mr. Rogers continued, “We also closed on the sale of a 20% minority stake in Truist Insurance Holdings in early April, which adds approximately 30 basis points to our risk-based capital ratios and, longer term, provides strategic and financial flexibility for both Truist and [Truist Insurance Holdings].”
Understanding that investors in regional banks must be braced for substantial volatility and that we mitigate overall portfolio risk via broad sector, industry and individual stock diversification, I think TFC will weather the current storm. Shares, which are still off by a third this year, despite a big rebound on May 5, trade for just 6.6 times next-twelve-month estimated earnings and offer a 7.2% dividend yield.
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