Regions Financial Corp RF's investor day revealed an impressive three-year strategy to boost profitability by improving efficiency with “seemingly moderate credit risk,” according to BMO Capital Markets.
The Analyst
BMO Capital Markets’ Lana Chan initiated coverage of Regions Financial with an Outperform rating and $17 price target.
The Thesis
The Birmingham, Alabama-based bank announced 2021 targets for return on average tangible common shareholders' equity of 18-20 percent and an efficiency ratio of above 55 percent. The company is also targeting annual net charge-offs of 40-65bps through 2019-2021.
Chan expects the improvement in profitability metrics to be led by the "Simplify & Grow" initiative, which could drive revenue growth, manage expenses and optimize capital. The company is committed to achieving these targets even if they call for more aggressive cost cuts, the analyst said.
The initiatives planned could lift Regions Financial’s profitability status to the top quartile among regional bank peers, boosting the stock’s historically discounted valuation to peers, Chan said.
BMO estimates EPS of $1.58 for 2019, $1.73 for 2020 and $1.88 for 2021, reflecting robust core growth of 9 percent, 10 percent and 8 percent, respectively.
Price Action
Regions Financial shares were up 0.45 percent at $15.64 at the time of publication Tuesday.
Related Links:
Wedbush Downgrades Regions Financial, Sees Slowing Capital Returns, Leverage To T-Note Yield
Benzinga's Top Upgrades, Downgrades For February 28, 2019
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