BB&T Should Trade At Premium To Other Large-Cap Banks, Says B Riley FBR

BB&T Corporation BBT shares pulled back along with the broader market last week, although they have recouped part of their losses since then.

The Analyst

B Riley FBR analyst Steve Moss upgraded shares of BB&T from Neutral to Buy and increased the price target from $55 to $69, reflecting revised estimates and a positive outlook.

The Thesis

BB&T's solid earnings outlook and the recent pullback in shares create an attractive entry point, Moss said in a Tuesday note. The bank has an improving revenue picture courtesy of "modest" loan growth, higher fee income and flat expenses, the analyst said. 

These factors are a positive sign for better profitability in 2018, Moss said. 

"This combined with diversified business mix (42 percent of revenue is fee-based) and BBT's preference for capital return via dividends and buybacks over bank M&A should support a higher stock price over time," the analyst said. 

B Riley FBR estimates a combined dividend payout ratio of 110 percent for the bank's 2018 comprehensive capital analysis and review, little changed from 2017.

Citing the difficulty in executing a merger in a slow growth economy, BB&T remains cautious on M&A, Moss said.

B Riley FBR increased its earnings estimates for BB&T in 2018 from $3.85 to $3.98 and from $4.10 to $4.35 in 2019. 

On valuation, Moss said BB&T's shares deserve to trade at a premium to other large-cap banks due to its diversified franchise and solid growth prospects.

The Price Action

BB&T shares were up about 18 percent over the past year through Monday. 

The stock was down 0.31 percent at the time of publication Tuesday afternoon. 

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