BMO Sees BB&T Corporation As A 'High-Quality Name'

BMO Capital reiterated its Outperform rating on BB&T Corporation BBT even as it doesn't see any scope for an interest rate hike in the current year. The brokerage has a one-year price objective of $40 on shares.

Analyst Lana Chan explained that the price objection was based on an expected forward "P/E multiple of 13.5x our revised 2017 EPS estimate discounted back 10% for half a year." In a research note, "We continue to view BBT as a high-quality name with little energy, foreign, or SNC exposure and above-peer profitability metrics. Catalysts include stronger loan growth, the realization of merger-related cost savings, and utilization of its CCAR buybacks."

The brokerage lowered its earnings expectation for the second quarter by a penny to $0.63 citing expected weak net interest margin (NIM). BMO expectation included the company's recent outlook for organic loan growth, NPL trends, and NIM.

BMO pointed out that BBT's outlook for the second quarter compared to the March quarter included the top-end of its 1-3 percent organic growth guidance range in average loan balances. The expectation was mainly due to robust commercial lending apart from slower declines in run-off portfolios.

The brokerage said, "We expect the efficiency ratio to rise in 2Q16 around the noise from two acquisitions closing; but management still expects an improvement in the efficiency ratio from 58.3% in 1Q16 to 57% by 4Q16. Merger-related cost savings will start to be realized in 2H16 ($160 million from SUSQ and $65 million from NPBC). Swett & Crawford cost saves of $25-$30 million are expected to be achieved in mid-2017."