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Jefferies upgrades BB&T and SunTrust ahead of deal closing

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Jefferies upgrades BB&T and SunTrust ahead of deal closing

Upgrades

Jefferies LLC analysts Ken Usdin and Casey Haire upgraded Winston Salem, N.C.-based BB&T Corp. and SunTrust Banks Inc. ahead of the company's merger of equals, expected to close in the fourth quarter.

If there is no delay in the closing, the pending deal will benefit the combined company's EPS and return on tangible common equity, as well as provide meaningful amounts of cost saves, the analysts wrote. They believe the Truist franchise will add incremental growth opportunities.

The analysts upgraded BB&T's stock rating to "buy" from "hold" and raised the price target to $58 from $52. They maintained the 2019 EPS estimate at $4.35, but lowered their 2020 estimate to $4.50 from $4.65.

The analysts upgraded SunTrust's stock rating to "buy" from "hold" and raised the price target to $75 from $67. They raised the 2019 EPS estimate to $5.60 from $5.55, but lowered their 2020 estimate to $5.35 from $5.60.

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Usdin and Haire also upgraded Birmingham, Ala.-based Regions Financial Corp. due to little net interest margin pressure during the lowering interest rate environment.

The analysts wrote that they see little impact on Regions' NIM following future interest rate cuts, and therefore they see no risk to EPS. Also, provisioning costs could be better than expected after CECL implementation as the company runs down its indirect auto and GreenSky Inc. consumer lending portfolios, according to the analysts.

The analysts upgraded the company's stock rating to "buy" from "hold" and raised the price target to $18 from $16. Their EPS estimates are $1.55 for 2019 and $1.63 for 2020.

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Stephens Inc. analyst Terry McEvoy upgraded Chicago-based First Midwest Bancorp Inc. following stock underperformance compared to its peers.

The company's asset-sensitive balance sheet position has negatively impacted its NIM, causing its stock to decline about 18% since February, compared to peers' declining about 13%, wrote McEvoy. However, McEvoy believes the company's loan growth outlook is achievable and will benefit its NIM.

The analyst upgraded the company's stock rating to "overweight" from "equal-weight" and raised the price target to $23 from $21. His EPS estimates are $1.82 for 2019 and $1.94 for 2020.

Downgrades

Usdin and Haire downgraded Buffalo, N.Y.-based M&T Bank Corp. due to NIM pressure from the lowering interest rate environment.

The lowering interest rate environment has reflected a tough EPS cycle, while recent changes in cost growth rates for 2020 have offset some net interest income pressure, the analysts wrote. Additionally, the analysts believe M&T Bank is an attractive potential acquirer, writing that the right opportunity could create positive EPS accretion potential.

The analysts downgraded the company's stock rating to "hold" from "buy" and lowered the price target to $167 from $185. They raised the 2019 EPS estimate to $14.30 from $14.25, but lowered the 2020 estimate to $14.05 from $14.15.

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Usdin and Haire also downgraded Salt Lake City-based Zions Bancorp NA due to pressure on net interest income from slowing loan growth and NIM pressure.

The lowering interest rate environment and Zions' slowing loan growth will lead to pressure on the company's NII, the analysts wrote.

The analysts downgraded the company's stock rating to "hold" from "buy" and lowered the price target to $46 from $51. They lowered their 2019 EPS estimate to $4.30 from $4.35, but maintained their 2020 estimate of $4.40.

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McEvoy downgraded Evansville, Ind.-based Old National Bancorp following strong stock performance compared to its peers.

Old National Bancorp's shares are up by about 11% year-to-date, while its peers' are up about 3%, according to McEvoy. The analyst expects some NIM compression, but the company's conservative lending approach could result in lower credit losses, the analyst wrote.

The analyst downgraded the company's stock rating to "equal-weight" from "overweight." His EPS estimates are $1.38 for 2019 and $1.36 for 2020.

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Raymond James analysts downgraded Houston-based Cadence Bancorp. driven primarily by potential credit deterioration.

The analyst believes the positives from the company's outperforming stock and benefits from its acquisition that closed in January will be overshadowed.

The analyst downgraded the company's stock rating to "market perform" from "outperform." His operating EPS estimates are $1.98 for 2019 and $2.06 for 2020.

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Raymond James also downgraded Pasadena, Calif.-based East West Bancorp Inc. due to NIM pressure from the lowering interest rate environment.

The analyst believes the company will record third-quarter and 2020 NIM below estimates because of pressure on its variable-rate loan yields. Also, the analyst remains wary of potential impact from the U.S.-China trade war on the company's stock price, although East West executives are confident investing in China.

The analyst downgraded the company's stock rating to "underperform" from "market perform." He lowered his operating EPS estimates to $4.59 from $4.62 for 2019 and to $4.80 from $4.88 for 2020.