Financial stocks have been among the star performers in 2012. They could also continue to outperform as the housing market improves and earnings increase when interest rate spreads return to more historical norms. One stock that has done very well recently is SunTrust (STI) but it has picked up some positive comments and catalysts recently and it still looks like it has some more upside for longer term investors.
Key recent catalysts for SunTrust:
- The company just announced that it plans to book a $1.9B pre-tax gain on the Coca Cola (KO) stock it has held since the early 1900's. This will improve its liabilities picture substantially.
- BMO Capital Markets upgraded the shares from "Market Perform" to "Outperform" based on this event. It raised its price target to $35 from $26 a share as well.
- Oppenheimer also raised its price target to $31 from $28 a share.
"SunTrust Banks operates as the holding company for SunTrust Bank, which provides various financial services in the United States. As of December 31, 2011, the company operated 1,659 full-service banking offices." (Business description from Yahoo Finance)
4 additional reasons STI offers solid value at just over $26:
- Earnings are on a sharp upslope. The company made just $1.09 a share in FY2011, but is on track for $2 a share in FY2012. Analysts are projecting $2.61 in EPS in FY2013.
- I don't believe analysts have caught up to the bank's earnings turnaround. The company has beat earnings estimates for five straight quarters. The average beat over consensus over the past four quarters have averaged better than 17%.
- The stock is selling at just 71% of book value and around 10 times forward earnings, a deep discount to its five year average (19.1).
- The company's footprint in the southeast as well as D.C. should grow faster than the nation as a whole over time, loan loss reserves are improving and Credit Suisse estimates that Suntrust will print around $4 a share in earnings in FY2015.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in STI over the next 72 hours.