KBW Downgrades SunTrust, Says It's Cautious On All Large Regional Banks

In a report published Wednesday, Keefe Bruyette & Woods analysts downgraded the rating on

from Outperform to Market Perform, while maintained the price target at $45. The downgrade reflects the absence of potential catalysts for an upward revision in the company's earnings estimates in the near future. SunTrust's shares are currently trading near KBW's price target and have limited upward potential n the near future. Although the company's current management establishing expense discipline is a positive feature, an increase in interest rates is essential to drive stock valuation going ahead. In the report Keefe Bruyette & Woods noted, "…any increase in our target price would have to come from upward revisions to our EPS estimates. However, we already have 125 bps of interest rate increases embedded in our 2016 EPS estimate. So, the benefit of net interest margin expansion is already accounted for in our expectations." "In fact, we would argue that the Fed has to raise interest rates by at least 125 bps by the end of 2016 just to maintain our current EPS estimates (for STI as well as the rest of the large regional banks under our coverage)," the analysts added. SunTrust is scheduled to change its check posting order from high / low to low / high. The resultant lower charges for deposit services may exert some pressure on the company's earnings over the next few quarters. "Management has not yet provided the potential impact or the timing of this change," the analysts said.