UPDATE: ISI Group Initiates Coverage on SunTrust Banks with Neutral Rating, $35.50 PT as Low Returns are a Limiting Factors

In a report published Tuesday, ISI Group analyst Keith Murray initiated coverage on SunTrust Banks STI with a Neutral rating and $35.50 price target. In the report, ISI Group noted, “We are initiating coverage of SunTrust with a Neutral rating and 12-month price target of $35.50. SunTrust is making progress on expenses, should benefit from improving credit trends in its key markets (employment and housing trends are picking up in the southeast), and will likely have improving capital returns in 2014. That said, we think the stock will have modest upside in the near term as NII will be flattish as loan growth remains tepid and mortgage revenue will head lower given the fall-off in refi activity and gain-on-sale compression. The stock is not expensive (10x our 2015E EPS) which should limit downside risk but we see limited multiple expansion as returns could remain below the peer group average in the near term.” SunTrust Banks closed on Monday at $32.29.