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Fifth Third (FITB) Displays Revenue Strength: Time to Hold?

Zacks Equity Research

On Jun 1, we issued an updated research report on Fifth Third Bancorp FITB. While the bank has a record of elevated expenses, its revenue performance and improving efficiency level through the implementation of various strategies will not disappoint investors.

Looking at the fundamentals, Fifth Third has a diverse revenue base, which is likely to support its earnings growth. With robust capital levels, the bank continues to focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates.

Additionally, the company remains focused on executing measures, including branch consolidations. Also, the company is focused on strategic investments through North Star initiatives and MB Financial’s buyout, which are expected to result in revenue growth, expense savings and operational excellence. Particularly, the company anticipates an annual pretax income benefit of $60-$75 million by 2022. Additionally, the transaction is likely to reduce expenses by $255 million.

With the gradual change in the rate environment, margin pressure for Fifth Third has eased. In the last four years (ended 2019), the company reported improving net interest margin (NIM) after witnessing a declining trend for years. The increase reflected an improvement in the yield on earning assets. Notably, the NIM remained stable on a year-over-year basis in first-quarter 2020.

Fifth Third’s capital-deployment activities are impressive. The company raised its quarterly common stock dividend by 12.5% this February. Further, the bank announced a share-buyback program of up to 100 million shares in June 2019, with no expiration date. Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” from the coronavirus pandemic.

Nonetheless, persistently rising operating expenses is a major concern. Fifth Third’s strategic investments in several areas, including technology, may further escalate costs in the near term. In addition, the loan portfolio of Fifth Third comprises majorly commercial loans (nearly 64% as of Mar 31, 2020). Such high exposure can be risky for the bank, signifying concentration risk amid uncertain markets.

The company has lost 32.8% in the past six months compared with the 31.8% decline recorded by the industry.


 

Furthermore, its earnings estimates have been unrevised, for the current and next year, over the past 30 days. The stock carries a Zacks Rank #3 (Hold), at present.

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Tradeweb Markets Inc TW has witnessed upward earnings estimate revisions for 2020 over the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has gained 52.1% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

GAIN Capital Holdings, Inc.’s GCAP current-year earnings estimate moved north in 60 days’ time. Further, the company’s shares have appreciated 47.4% over the past six months. At present, it holds a Zacks Rank of 2 (Buy).

Mackinac Financial Corporation MFNC has witnessed upward earnings estimate revision for the ongoing year in the past 60 days. This Zacks #2 Ranked stock has depreciated 36.7% over the past six months.

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