Why Is BB&T (BBT) Up 6.5% Since Last Earnings Report?

It has been about a month since the last earnings report for BB&T (BBT). Shares have added about 6.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BB&T due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BB&T’s Q3 Earnings & Revenues Beat, Provisions Increase

BB&T Corporation’s third-quarter 2018 adjusted earnings of $1.03 per share surpassed the Zacks Consensus Estimate of $1.00. Also, the figure represents growth of 32.1% from the year-ago quarter.

Results reflected rise in revenues and lower operating expenses. Also, the balance sheet position remained strong during the quarter under review. However, higher provisions hurt results to some extent.

Results excluded merger-related and restructuring charges. After considering these, net income available to common shareholders for the reported quarter was $789 million or $1.01 per share, up from $597 million or 74 cents per share in the prior-year quarter.

Revenues Grow, Expenses Decline

Total revenues were $2.93 billion, up 4% year over year. Also, the figure marginally surpassed the Zacks Consensus Estimate of $2.91 billion.

Tax-equivalent net interest income increased 1.5% from the prior-year quarter to $1.71 billion. Net interest margin fell 1 basis point (bp) from the prior-year quarter to 3.47%.

Non-interest income increased 6.3% year over year to $1.24 billion. The rise was due to an increase in almost all components of fee revenues except mortgage banking income and income from bank-owned life insurance.

Non-interest expenses of $1.74 billion fell marginally from the year-ago quarter. The decrease was due to fall in almost all components of expenses except personnel expenses, software expenses and professional services costs.

BB&T’s adjusted efficiency ratio was 57.3%, down from 58.3% in the prior-year quarter. Fall in efficiency ratio indicates rise in profitability.

As of Sep 30, 2018, total deposits were nearly $154.56 billion, down 3.1% from the last reported quarter. Total loans and leases of $147.71 billion were down marginally from the prior quarter end.

Credit Quality: A Mixed Bag

As of Sep 30, 2018, total non-performing assets (NPAs) were $601 million, down 11.6% year over year. As a percentage of total assets, NPAs came in at 0.27%, down 4 bps.

Further, net charge-offs were 0.35% of average loans and leases, unchanged year over year.

However, allowance for loan and lease losses was 1.05% of total loans and leases held for investment, up 1 bp from the prior-year quarter. Moreover, provision for credit losses was $135 million at the end of the reported quarter, up 7.1% on a year-over-year basis.

Profitability Ratios Improve, Capital Ratios Remain Stable

At the end of the reported quarter, return on average assets was 1.49%, up from 1.16% in the prior-year quarter. Return on average common equity improved to 11.69% from 8.82% as of Sep 30, 2017.

As of Sep 30, 2018, Tier 1 risk-based capital ratio was 11.9%, stable year over year. BB&T's estimated common equity Tier 1 ratio under Basel III was approximately 10.2% as of Sep 30, 2018, in-line with Sep 30, 2017.

Share Repurchases

During the reported quarter, BB&T repurchased $200 million worth of shares through open-market purchases.

Outlook

Fourth-Quarter 2018

On a sequential basis, management projects GAAP and core NIM to increase slightly.

Non-interest income is expected to increase 2-4% year over year. Average total loans held for investment are expected to be up 1-3% sequentially.

Excluding merger-related and restructuring charges, and other one-time items, expenses are expected to rise 1-3% year over year.

Management expects effective tax rate of 21%.

Management projects NCOs to increase sequentially and be 35-45 bps on the assumption that there is no deterioration in the economy. Also, loan loss provisions are expected to match NCOs, in addition to providing for loan growth.

The company expects to repurchase nearly $375 million worth of shares.

2018

Total average loans are projected to rise in the range of 1-3%.

Management expects revenues (tax-equivalent basis) to grow in the 1-3% range year over year in 2018. This includes the impact of Regions Insurance in the second half of 2018.

Moreover, operating expenses are anticipated to remain stable and effective tax rate to be 20-21%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, BB&T has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, BB&T has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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