Hedging And Cost Control Enough For Regions Financial To Outperform

There is no shortage of bank stocks that look undervalued today, but the key is to find banks that will somehow stand out in the next, more challenging, phase of the cycle – a cycle that will see spread compression from rate cuts, so-so loan growth prospects, and rising credit costs. I thought that Regions Financial (RF) was undervalued back in January but lacking in catalysts, and the shares have lagged regional bank indices by about 3% to 6% since then.

Regions is looking a little more interesting to me now, though. Management’s forward-thinking hedging strategy should limit some of the spread compression damage, and management is likewise focused on continuous efficiency improvement as a key driver over the next few years. Credit costs are a concern, and Regions doesn’t have great fee-based offsets, but this is an incrementally more interesting story and the mid-single-digit pre-provision profit growth I expect from Regions over the next three to five years could drive relative outperformance.

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Hedging And Cost Control Enough For Regions Financial To Outperform