5 Buy-Rated Banks From Guggenheim

Tickers in this article: BBT COF JPM MTB RF STI USB WFC

NEW YORK (TheStreet) -- Bank stock investors need to look beyond current bargains and focus on companies with strong prospects for earnings growth.

As discussed in today's article on banks that are cheaply priced to 2013 earnings estimates, the "bargain shopping" approach of looking for names trading for low multiples to tangible book values has worked for investors during the current bank stock recovery, but going forward, earnings growth will be the name of the game for long-term investors.

Guggenheim Securities analyst Marty Mosby on Wednesday reiterated his "Buy" ratings for three "high quality banks that can generate earnings growth," while upgrading two others that are going through major transitions to "Buy" ratings, and downgrading three that "have recently experienced significant favorable price moves" to neutral ratings.

First the downgrades:

  • Mosby downgraded BB&T to a neutral rating from a "Buy" rating, while leaving his price target unchanged at $34, saying that that BB&T's closing price on Tuesday of $31.37 already reflects the Winston-Salem, N.C., lender's earnings potential for 2013. BB&T's shares have returned 25% year-to-date, and the shares trade for 11 times the consensus 2013 earnings estimate of $2.96 a share, among analysts polled by Thomson Reuters. Mosby estimates BB&T will earn $2.60 a share this year, followed by EPS of $3.07 in 2013.
  • Guggenheim downgraded SunTrust of Atlanta to neutral from "Buy," with an price unchanged price target of $26, with Mosby also saying the company's 2013 EPS potential was baked-into the share price. SunTrust has returned 40% year-to-date, closing Tuesday at $24.65. The shares trade for nine times the consensus 2013 EPS estimate of $2.69. Mosby estimates the lender will earn $1.80 a share during 2012, followed by 2013 EPS of $2.25.
  • Mosby also downgraded M&T Bank of Buffalo, N.Y., to a neutral rating from a "Buy," while raising his price target by a dollar to $96, saying that "M&T Bank continues to be a safe haven with little downside, in our view, but as the economy continues to improve we would value this downside protection less." M&T returned 14% year-to-date through Tuesday's close at $86.26. The shares trade for 12 times the consensus 2013 EPS estimate of $7.39. Mosby estimates M&T will earn $6.95 a share this year, followed by 2013 EPS of $8.00.

The following five bank stocks were either upgraded or had their "Buy" ratings reiterated by Mosby:

Capital One
Shares of Capital One Financial of McLean, Va., closed at $55.13 Tuesday, returning 31% year-to-date, following a flat return during 2011.

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The company recently completed its long-delayed acquisition of ING Direct, and expects soon to complete its purchase of HSBC's $30 billion U.S. card portfolio for a $2.6 billion premium having been received. The company last priced a $1.25 billion common equity offering.

Mosby upgraded Capital One to a "Buy" rating from a neutral rating, while raising his price target to $67 from $54, saying that he expects the two acquisitions "be accretive over the next year," and will add "between $0.50 and $1.00 in earnings power once fully integrated."

The analyst also said that "recent pressure to increase investment in risk management processes ahead of the closing of the acquisitions pressured fourth quarter earnings and the stock price."

Capital One's shares trade for eight times the consensus 2013 EPS estimate of seven dollars.

Mosby estimates the company will earn $5.86 cents a share during 2012, followed by 2013 EPS of $7.21.

Interested in more on Capital One Financial? See TheStreet Ratings' report card for this stock.

Regions Financial
Shares of Regions Financial of Birmingham, Ala., closed at $6.46 Tuesday, returning 50% year-to-date, following a 38% decline during 2011.

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Regions has a pending deal to sell its Morgan Keegan brokerage subsidiary to Raymond James Financial for "total consideration of $1.18 billion," which is expected to close late this month.

The company owes $3.5 billion in federal bailout funds received in November 2008, through the Troubled Assets Relief Program, or TARP. Following the completion of the Federal Reserve's annual stress tests last week, Regions announced it had commenced a $900 million common stock offering, and said that including the offering's net proceeds of $875 million, the money from the Morgan Keegan sale and a full redemption of TARP preferred shares held by the U.S Treasury, the company's Tier 1 common equity ratio its Tier 1 common equity ratio, based on Dec. 30 numbers, would be a strong 9.51%.

Mosby on Wednesday upgraded Regions to a "Buy" rating from a neutral rating, while raising his price target to $9 from $6, saying that "while Regions has traded toward tangible book value, we believe that earnings momentum over the next year will be strong as asset quality pressures subside.

Regions trades for nine times the consensus 2013 EPS estimate of 73 cents.

Mosby is way out in front of the consensus, estimating that Regions will earn 83 cents a share this year, followed by 2013 EPS of $1.05.

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

Wells Fargo
Shares of Wells Fargo closed at $34.32 Tuesday, returning 25% year-to-date, after a 10% pullback during 2011.

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Following the completion of the Federal Reserve's stress tests last Tuesday, Wells Fargo raised its quarterly dividend to 22 cents from 12 cents, and announced that the regulator hadn't objected to a plan to increase its share buybacks from last year.

During 2011, Wells Fargo bought back 26.6 million shares, and under its buyback program was authorized to repurchase another 117.3 million shares, as of Dec. 30.

Mosby reiterated his "Buy" rating for Wells Fargo, while raising his price target to $43 from $37, saying "WFC represents the best value at less than 9x our 2013 earnings per share estimate and should continue to benefit from deployment of excess liquidity, leveraging its national franchise, and a rebound in mortgage profitability."

Wells Fargo trades for nine times the consensus 2013 EPS estimate of $3.70.

Mosby estimates the company will earn $3.43 a share this year, followed by 2013 EPS of $3.84.

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

JPMorgan Chase
Shares of JPMorgan Chase closed at $45.38 Tuesday, returning 37% year-to-date, following a 20% decline during 2011.

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JPMorgan announced last Tuesday that the Federal Reserve had not objected to its capital plan, which included an increase of its quarterly dividend to 30 cents from 25 cents, and the authorization of $15 billion in share buybacks, including $12 billion this year, and another $3 billion authorized for the first quarter of 2013.

Mosby on Wednesday reiterated his "Buy" rating for JPMorgan Chase, while raising his price target for the shares to $53 from $50, and saying the company "should benefit as economic activity bounces back and fee-based businesses return to more normal levels," and that the "upside potential is tied to continued growth in dividends and earnings."

Mosby added that "JPM's strong capital position and management approach should allow the bank to increase dividends and capture market share as management continues to invest in expanding the franchise."

JPMorgan Chase's shares trade for eight times the consensus 2013 EPS estimate of $5.51.

Mosby estimates that the company will earn $4.96 a share this year, followed by 2013 EPS of $5.68.

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

U.S. Bancorp
Shares of U.S. Bancorp of Minneapolis closed at $31.70 Tuesday, returning 17% year-to-date, following a 2% return last year.

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The company announced last Wednesday that it would increase its quarterly dividend to 19.5 cents from 12.5 cents, and that its board of directors had authorized the repurchase of up to 100 million common shares.

Mosby reiterated his "Buy" rating for USB, while raising his price target for the shares to $41. From $37, saying the company was "uniquely concentrated in the commercial sector of the economy and we believe it should benefit from robust growth as corporate America returns to more of a focus on growth."

The analyst said that U.S. Bancorp's "strong loan growth combined with an industry-leading risk management track record produces low-risk earnings growth," and that "USB is currently earning around 1.6% on assets and 16% on equity."

The shares trade for 11 times the consensus 2013 EPS estimate of $2.91.

Mosby is ahead of the consensus, estimating that U.S. Bancorp will earn $2.91 a share this year, and $3.31 a share during 2013.

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 5 Buy-Rated Banks From Guggenheim portfolio on Stockpickr.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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Tickers in this article: BBT COF JPM MTB RF STI USB WFC