Why Is SunTrust (STI) Up 3.5% Since Its Last Earnings Report?

It has been about a month since the last earnings report for SunTrust Banks, Inc. STI. Shares have added about 3.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is STI due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

SunTrust Beats on Q1 Earnings as Expenses Decline

SunTrust’s first-quarter 2018 earnings of $1.29 per share outpaced the Zacks Consensus Estimate of $1.11. Also, the figure compared favorably with the prior-year quarter’s earnings of 91 cents.

Results were primarily driven by rise in net interest income, lower expenses as well as lower provisions. Also, an improvement in overall asset quality was a tailwind. However, decline in non-interest income hurt results to some extent.

Net income available to common shareholders for the quarter was $612 million, up 36% from the prior-year quarter.

Net Interest Income Increases, Costs Decline

Total revenues (taxable equivalent basis) for the quarter were $2.26 billion, almost stable year over year. However, the figure lagged the Zacks Consensus Estimate of $2.28 billion.

Net interest income (FTE basis) increased 4% year over year to $1.46 billion.

On a year-over-year basis, net interest margin was up 15 basis points (bps) to 3.24%, mainly reflecting higher earning asset yields, lower premium amortization expenses and positive mix shift in the loan portfolio.

Non-interest income was $796 million, down 6% from the prior-year quarter. The decline was due to a fall in capital markets-related income, mortgage-related income as well as client transaction-related fees.

Non-interest expenses declined 3% from the year-ago quarter to $1.42 billion, largely due to lower operating losses and other non-interest expenses.

Credit Quality Improved

Total non-performing assets were $778 million as of Mar 31, 2018, down 9% from the prior-year-quarter end. Non-performing loans fell 5 bps year over year to 0.50% of total loans held for investment.

Further, the rate of net charge-offs decreased 10 bps year over year to 0.22% of total average loans held for investment. Also, provision for credit losses plunged 76% from the year-ago quarter to $28 million.

Strong Balance Sheet

As of Mar 31, 2018, SunTrust had total assets of $204.9 billion while shareholders’ equity was $24.3 billion, representing nearly 12% of total assets.

As of Mar 31, 2018, loans held for investments were $142.6 billion, down marginally from the prior-quarter end. Total consumer and commercial deposits increased 1% from the prior quarter to $161.4 billion.

SunTrust’s estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was 9.85% as of Mar 31, 2018.

Share Repurchase

During the reported quarter, the company bought back shares worth $330 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to two lower.

SunTrust Banks, Inc. Price and Consensus

 

SunTrust Banks, Inc. Price and Consensus | SunTrust Banks, Inc. Quote

VGM Scores

At this time, STI has a poor Growth Score of F, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, STI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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