Balanced Risk-Reward for Fifth Third - Analyst Blog

On March 13, 2014, we issued an updated research report on Fifth Third Bancorp FITB. This regional bank recently reported decent fourth-quarter 2013 results. Results were aided by lower expenses, increased loan and deposit balances and reduced provision for credit losses, partially offset by a declining top line. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.

Fifth Third reported fourth-quarter 2013 earnings of 43 cents per share in line with both the Zacks Consensus Estimate and the prior-year quarter figure. Net income for the quarter available to common shareholders was $383 million, down from $390 million in the year-ago quarter. Results included a benefit from the mortgage repurchase provision of $28.0 million primarily related to Fifth Third's settlement with Freddie Mac and certain other non-recurring items.

The company exhibited a decent performance in 2013 as evident from its earnings history. In 2013, the company posted a positive earnings surprise in 1 quarter, negative earnings surprise in 2 quarters and in-line earnings in the final quarter.

We view Fifth Third as a sound asset for yield-seeking investors. In June 2013, after getting the Federal Reserve's approval, the company hiked its quarterly dividend to 12 cents per share. Notably, during 2013, Fifth Third paid $393 million in common stock dividends. Such a shareholder-friendly approach inspires investors' confidence in the stock.

Fifth Third continues to focus on core deposit growth in its retail and commercial franchises by improving customer satisfaction, building full relationships and offering competitive rates. Despite the overall sluggish economic environment, Fifth Third's total deposits recorded a 4-year CAGR of 5% in 2013.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include absence of credible improvement in the mortgage market, declining net interest margin due to the low interest rate environment and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 60 days inched up 1.1% to $1.80 per share for 2014. Yet, for 2015 it remained stable at $1.94 per share, over the same time frame.

Fifth Third currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked companies in the banking sector include Comerica Incorporated CMA, Wells Fargo & Company WFC and Raymond James Financial, Inc. RJF. All these 3 carry a Zacks Rank #2 (Buy).