Fifth Third Bancorp: Stay The Course Because There Is Now A Major Catalyst In Place

Mar. 28, 2019 2:18 AM ETFifth Third Bancorp (FITB)14 Comments
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  • Fifth Third stock has significantly underperformed the broader market over the last year, and the YTD performance has not been much better.
  • However, I believe that this bank is well-positioned for 2019 and beyond, especially if you factor in the recently approved acquisition of MB Financial.
  • I am long Fifth Third, and I plan to stay long the stock.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Start your free trial today »

Fifth Third Bancorp (NASDAQ:FITB) stock has been under significant pressure so far in 2019, as economic slowdown and interest rate concerns have wreaked serious havoc.

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However, I believe that the underperformance has created a buying opportunity for investors with a long-term mindset because, in my opinion, Fifth Third is well-positioned for 2019 and beyond. Plus, it helps the bull case that this bank now has a significant catalyst in place.

The New Catalyst

On March 22, 2019, Fifth Third announced that it completed its $4.7 billion acquisition of MB Financial (MBFI). Management expects big things from this deal:

  • Revenue synergies of $60-70 million over the next three years
  • Pre-tax expense synergies of $255 million over the next two years (50% in year 1)
  • It improves several key capital ratios and will help the bank reallocate capital to core markets

Simply put, management expects for this deal to be a game changer. And more important than the current revenue/expense projections, management believes that MB Financial will put Fifth Third in a better position for the future.

Source: Company Presentation, March 2019

Moreover, the combined company will be better positioned to compete with other large financial institutions in key growth markets.

Source: Company Presentation, March 2019

MB Financial brings in approximately $20 billion in assets, along with several strong business lines. Moreover, management expects for the deal to be accretive to operating EPS in the first full year and, more importantly, they believe that the deal will help Fifth Third speed up the achievement of its strategic financial targets (i.e., Project NorthStar).

There is a lot to like about this deal, especially if you are a shareholder who plans to stay long FITB through at least 2020, because having MB Financial in the fold puts Fifth Third in a great

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This article was written by

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Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long FITB, KEY. 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.

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