Shares of SunTrust Banks, Inc. (STI) have recorded a year-to-date return of 25.9%. This was driven by impressive organic growth, prudent expense management, improvement in asset quality and balance sheet restructuring initiatives.
However, going forward, we do not feel confident about these positives translating to further price appreciation due to pressure on mortgage servicing revenues and intense competition for deposits. Additionally, given its fundamentals following third-quarter 2013 earnings release, we discourage against further investment in the company’s shares.
Justification of Stance
Though SunTrust’s third-quarter 2013 operating earnings per share missed the Zacks Consensus Estimate, it came above the prior-year quarter figure. Additionally, the company’s improved results in the past several quarters and steady capital deployment activities will likely help it to reclaim pre-recession capital strength. Further, increasing loan demand will eventually lead to top-line growth and provide SunTrust the buoyancy to maintain profitability.
On the flip side, SunTrust continues to face stiff competition for deposits. Increasing consolidation activities, along with limited regulatory restrictions for non-banking financial institutions to raise deposits have heightened the competitive environment for the bank. Moreover, SunTrust’s significant exposure to commercial and residential loan portfolios (nearly 84% of total loans as of Sep 30, 2013) remains a concern.
Further, over the last 30 days, the Zacks Consensus Estimate for 2013 declined 1.7% to $2.38 per share, while the Zacks Consensus Estimate for 2014 rose by a penny to $2.98 per share. As a result, SunTrust carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked financial stocks include SVB Financial Group (SIVB), BofI Holding, Inc. (BOFI) and Fifth Third Bancorp (FITB). While SVB Financial and BofI Holding carry a Zacks Rank #1 (Strong Buy), Fifth Third has a Zacks Rank #2 (Buy).