UPDATE: Bank of America Merrill Lynch Reiterates Underperform Rating, Raises PO on SunTrust Banks
In a report published Friday, Bank of America Merrill Lynch reiterated its Underperform rating on SunTrust Banks (NYSE: STI), and raised its price objective from $20.00 to $24.00.
BofA Merrill Lynch noted, “STI announced a series of moves that the market will view positively, but we would fade what is likely to be a strong move in the stock today. Positively, pulling forward its putback expense improves EPS visibility. This said, bulls on this stock have valued STI on "core" EPS – stripping out mortgage putback expense and the lion's share of credit-related expenses. STI's announcement does not materially change its medium-term core EPS power, which we believe is lower than the market expects. The biggest differential, we believe, between us and consensus is on spread revenue and, to a lesser extent, core expense control. We are raising our PO to $24 to reflect a higher target multiples to remove the overhang from mortgage putback, but this still reflects downside risk. As such, we remain cautious on the stock. On 3Q12 GAAP EPS reflects: 1) a +$2.47 from the sale of KO stock; 2) a $375mn mortgage repurchase provision in 3Q (-$0.49), sufficient to cover est. losses from '05-08 vintages acc. to STI, 3) transfer of ~$3bn loans to HFS, generating a $250mn charge (-$0.33); and 4) the sale of $200mn in affordable housing investments, resulting in a pre-tax loss of $100mn (-$0.13).”
SunTrust Banks closed on Thursday at $26.68.
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