Thursday, January 23, 2020

Regions Financial Lagging On Weak Loan Growth And Lingering Credit Worries

Among the banks I like, Regions Financial (RF) has been pretty underwhelming, with the shares lagging their peer group by about 4% since my last update and a few percentage points over the past year as well, as the Street remains unimpressed with the weak loan growth, ongoing credit costs, and limited capital opportunities. None of that is going to be fixed by fourth quarter earnings; Regions didn't post a bad quarter, but guidance for positive operating leverage doesn't seem to have convinced the Street, particularly in light of weak lending performance.

I think Regions management is doing a lot of the right things - focusing on loan returns (versus growth), operating efficiency, and sources of non-spread-based income growth. Still, I don't love this name so much because I love the company or management as I think the valuation is out of whack (with a fair value close to $19%). Valuation unfortunately isn't a catalyst in and of itself, and investors will need patience for this to work, meanwhile more dynamic names like Synovus (SNV) and First Horizon (FHN) still offer upside among Southeast U.S. banks.

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Regions Financial Lagging On Weak Loan Growth And Lingering Credit Worries

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