On Dec 16, 2015, we issued an updated research report on SunTrust Banks, Inc. STI. Cost saving measures of the company continue to be a positive factor while revenue growth remains subdued.
The success of SunTrust’s cost-saving initiatives could be seen in a downtrend in expenses over the last few quarters. Non-interest expenses dropped 40% in 2013 and declined 5% in 2014 with the trend continuing in the first nine months of 2015. Moreover, management expects expenses to remain stable year over year in 2015 as the company will focus more on improving revenues.
Moreover, the increasing trend witnessed in the company’s total loan portfolio will likely ease the pressure on revenues to some extent. Though management expects modest downward pressure on loan yields given the present environment for new production yields, we expect loan demand to improve and provide SunTrust buoyancy to maintain its profitability supported by overall improvement in the economy.
Further, SunTrust has been experiencing improvement in its credit quality with nonperforming loans and net charge-offs reporting a decline. Management expects a further decline in nonperforming loans at a moderate pace, driven by the residential portfolio, while net charge-offs are expected to remain stable in the near term. Overall provisions in 2015 will likely remain below the 2014 level. With improvement in the overall economy, we expect further progress in the asset quality in the subsequent quarters.
On the flip side, a persistent strain on revenues makes us apprehensive about SunTrust’s future growth prospects. Top line continues to be under pressure owing to a still low interest rate scenario. Also, rising consolidation activities and limited regulatory restriction for non-banking financial institutions have significantly heightened competition for the company.
Analysts hold mixed views about SunTrust’s future prospects. Hence, over the last 7 days, the Zacks Consensus Estimate decreased by a penny to $3.51 per share for 2015, while it remained unchanged at $3.55 per share for 2016.
SunTrust currently carries a Zacks Rank #3 (Hold).
Some better-ranked banks include The PNC Financial Services Group, Inc. PNC, BofI Holding, Inc. BOFI and Westamerica Bancorp. WABC. All these stocks hold a Zacks Rank #2 (Buy).
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