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A 'Bullish Sign': Analysts Positive On BB&T's Mega Merger With SunTrust

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A 'Bullish Sign': Analysts Positive On BB&T's Mega Merger With SunTrust

The proposed combination of BB&T Corporation (NYSE: BBT) with SunTrust Banks, Inc. (NYSE: STI) could create the sixth-largest U.S. retail bank and mark the largest merger in the sector since the financial crisis.

Here's how some of the Street's top analysts reacted to Thursday's merger announcement. 

The Analysts

  • Raymond James' Michael Rose maintains an Outperform rating on BB&T's stock with a price target lifted from $52 to $56.
  • Bank Of America Merrill Lynch's Ebrahim Poonawala.
  • Wedbush's Peter Winter maintains SunTrust's stock at Neutral, price target lifted from $63 to $69.
  • TD Ameritrade senior trading specialist Shawn Cruz.

Raymond James: Conference Call Review

BB&T and SunTrust held a conference call Thursday after the announcement. Rose shared eight takeaways from the call: 

  • A large amount of time was spent discussing the importance of similar cultures.
  • A key component of the merger's success lies with technological innovation.
  • Revenue synergies aren't included in current projections, as SunTrust's digital lending capabilities represent a good fit for BB&T's retail customers, with additional scale in mortgage offers offering even more synergy upside.
  • The companies are hopeful the deal can close earlier than the fourth quarter of 2019.
  • There will be no portfolio run-off, with growth expected to accelerate immediately after close.
  • Share buybacks are paused with the exception of $300 million worth of SunTrust buybacks in Q1.
  • Despite meaningful branch overlaps the companies will "exercise caution" with closures.
  • To close the deal, the joint company would divest $1.35 billion of deposits and realize a $100-million after-tax gain.

BofA: More Deals To Come

Shares of BB&T and SunTrust moved higher following the merger-of-equals announcement, which implies it was "well-received" by bank investors, Poonawala said in a research report.

More important, the combination of two smaller regional banks could become more common, as individual banks will find it more difficult to generate growth amid increasingly difficult macro tailwinds, the analyst said. 

Regional banks that are "running out of steam" and showing minimal or no organic growth will be pressured by investors to consider M&A deals to add scale, Poonawala said, adding that in the banking space, it is far from guaranteed that "everyone can be a winner."

Related Link: Benzinga's Top Upgrades, Downgrades For February 8, 2019

Wedbush: The Deal Can Work

Mergers of equals are "not easy," and many examples of failure exist, Winter said in a research report.

Yet the combination of BB&T and SunTrust could be the exception, as both management teams presented a "very compelling argument why this one should work," he said.

The two companies have similar cultures and operate in similar markets, and even a conservative base of assumptions makes the deal highly accretive, Winter said. 

A favorable regulatory environment is also important to the deal, according to Wedbush: the combined entity will still enjoy the reduced LCR of 70-85 percent and the permanent opt-out of AOIC.

TD Ameritrade: Bullish Sign

Investors tend to view consolidation as a method to alleviate headwinds and as an action taken to "address issues outside of your control," Cruz told Benzinga. Deals don't "happen in a vacuum — especially ones of this size — so it should be seen as a "bullish sign right now," he said. 

Price Action

BB&T shares were down 0.83 percent at $50.04 at the time of publication Friday, while SunTrust shares were down 0.68 percent at $64.28. 

Related Links: In Wake Of SunTrust/BB&T Merger, Financials Weak On Lower Bond Yields

Photo by Bubba73/Wikimedia. 

Latest Ratings for BBT

DateFirmActionFromTo
Nov 2019Morgan StanleyMaintainsEqual-Weight
Nov 2019Janney CapitalDowngradesBuyNeutral
Oct 2019UBSMaintainsNeutral

View More Analyst Ratings for BBT
View the Latest Analyst Ratings

 

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