Morgan Stanley Upgrades Synovus Financial After Earnings, Profit Growth

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The bearish case against Synovus Financial Corp. SNV has come to an end, according to Morgan Stanley.

The Analyst

Morgan Stanley's Ken Zerbe upgraded Synovus Financial from Underweight to Equal-weight with a price target raised from $52 to $53.

The Thesis

Synovus has significantly improved its earnings and profitability over the past year, and the stock's 13.7x multiple on 2019E EPS "appropriately" values the stock, Zerbe said in the upgrade note. (See the analyst's track record here.) 

A bearish stance no longer applies for three reasons, the analyst said:

  • Synovus is expected to grow its EPS through 2020 at a faster pace than its peers, at 11 percent annually versus 8.5 percent for the group, Zerbe said. While an 11-percent growth rate is "far less" than the 23-percent rate the bank showed over the past three years, it should be noted that Synovus no longer has the ability to lever up its balance sheet as it did in the past, the analyst said.
  • Synovus has bought back 16 percent of its outstanding shares in a program that began in 2014, Zerbe said. Over the same time period, the company benefited more than its peers from higher rates and balance sheet repositioning — and generated high levels of efficiency improvements from slower overall expense growth.
  • The bank stock is not "expensive," as it is trading at 14.2x on a next 12 months basis ,which implies it is now trading at a discount to its peers for the first time since January 2012.

Price Action

Synovus Financial shares were up 1.9 percent at $52.65 at the time of publication Wednesday morning. 

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Posted In: Analyst ColorUpgradesPrice TargetAnalyst Ratingsbanksfinancial servicesKen ZerbeMid Cap BanksMorgan Stanley
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