Fifth Third's Current Performance Underlines The Need For North Star

Whether you look at just the period since the election or the last twelve months, Fifth Third (NASDAQ:FITB) has had a pretty remarkable run in an admittedly strong tape for bank stocks. What's arguably more remarkable is that the performance has come despite minimal loan growth (up just 2% since the end of 2014) and a decline in core pre-provision earnings. Even further, I don't think there's really a meaningful metric you can look at and declare Fifth Third a top operator.

On the other hand, the market is a forward-looking entity and I won't argue that Fifth Third's prospects aren't looking better now. Guidance for 2017 doesn't call for robust growth, but it was better than expected, and management continues to position its North Star program as a major transformational effort for the business. I am not giving full credit to the North Star efforts at this point (there's still too much of a "trust us … it'll work" element to the disclosed details), but each incremental 1% of long-term adjusted earnings growth translates to about 10% incremental fair value, so there is at least a path to a higher valuation here.

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Fifth Third's Current Performance Underlines The Need For North Star