Banking On Value – Truist Financial (TFC)

Following the failure of First Republic (FRC), regional bank stocks have come under renewed pressure. In The Prudent Speculator’s latest special report, Banking on Value – Revisited, I discuss the latest goings on and separate fact from fiction. I also offer actionable advice from our Value Investing perspective, including three additional undervalued stock selections to go along with the one featured below.

The Prudent SpeculatorBanking On Value – Revisited

Truist Financial

TFC
is an inexpensive regional bank that likely isn’t getting the credit it deserves, given its size and geographic reach.

The marriage of Southeastern banking leaders BB&T and SunTrust forming Truist in 2019 combined two regional leaders in the Southeast with conservative lending culture, competitive franchises and the potential for cost savings.

TFC earned $1.05 per share in Q1, below the $1.14 expected by analysts, and the company trimmed its outlook for the year amid higher funding costs, which contracted net interest margin by 8 basis points compared to Q4. Of course, the regional bank still expects to grow revenue 5% to 7% this year, though this is down from prior guidance of 7% to 9% growth.

These days, many naturally are questioning the viability of the regional banks, with TFC CEO Bill Rogers recently explaining, “In a challenging and unique quarter for the banking industry, Truist demonstrated strength and leadership that reflects our diverse business model, granular and relationship-oriented deposit base, and strong capital and liquidity position.”

Mr. Rogers continued, “We also closed on the sale of a 20% minority stake in Truist Insurance Holdings in early April, which adds approximately 30 basis points to our risk-based capital ratios and, longer term, provides strategic and financial flexibility for both Truist and [Truist Insurance Holdings].”

Understanding that investors in regional banks must be braced for substantial volatility and that we mitigate overall portfolio risk via broad sector, industry and individual stock diversification, I think TFC will weather the current storm. Shares, which are still off by a third this year, despite a big rebound on May 5, trade for just 6.6 times next-twelve-month estimated earnings and offer a 7.2% dividend yield.