BB&T: Solid Bank With An Attractive Price

| About: BB&T Corporation (BBT)

BB&T (NYSE:BBT) is one of our favorite banks. In our opinion, BB&T is a very high-quality bank which we place somewhere between U.S. Bancorp (NYSE:USB) and Wells Fargo (NYSE:WFC) in terms of the quality of its banking operations. BB&T is the 11th-largest bank in the U.S. based on assets ($184 billion). Most of BB&T's 1750 bank branches are located in the southeastern U.S. primarily in North Carolina, Virginia, Florida, and Georgia. In recent years, BB&T's revenues have become more diversified with increases in revenues derived from fees generated from specialized lending, wealth management, life insurance, and insurance brokerage services.

We believe that BB&T will earn about $2.98/share in 2013 and $3.17/share in 2014. Our projections are that 2013 earnings will be driven by a 7.0% increase in loan growth and a 5.5% increase in fee income. Also, trends in charge-offs for nonperforming loans have continued to improve. In 2012, nonperforming loans were 1.24% of all loans compared to 1.84% for the same metric in 2011. In the fourth quarter of 2012 new nonperforming loans were $125 million significantly below BB&T's trailing average of $226 million in new nonperforming loans per quarter. S&P projects net charge-offs of $920 million in 2013 compared to $1.295 billion in charge offs recorded in 2012. These improving trends will provide BB&T with tailwinds for the next few years as its legacy bad loans are worked off of the books.

We believe that BB&T is a good buy for the following reasons:

  1. BB&T is selling at an attractive forward earnings multiple of 9.6 times 2013 projected consensus earnings.
  2. BB&T has a solid balance sheet with $5.44 billion in cash.
  3. BB&T has a very attractive 3.00% dividend yield and a history of consistent dividend increases with the latest dividend increase of 15.0% earlier this year.
  4. S&P has a Strong Buy rating on the stock (5 out of 5 stars) and a 12-month price target of $35.00 per share, which is 16.0% above today's price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.