Is Regions Financial Likely to Outperform?

Dan Moskowitz — Tue, 22 Jan 2013 16:10:04 +0000

With shares of Regions Financial Corp. (NYSE:RF) trading at around $7.43, is RF an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Regions Financial swung to a gain compared to last year’s Q4 loss. Q4 EPS came in at $0.18 per diluted share. Net interest income was stable at $818 million. Total revenue was $1.35 billion. FY2012 EPS was $0.76 per diluted share.

Regions Financial has taken all the necessary steps to turn its ship around. In 2012, bailouts were repaid, the sale of Morgan Keenan was completed, and the company’s credit rating was improved. In addition to that, there were increased loans to middle market companies, increased auto loans, new consumer products launched, and aggressive investments made in mobile and online platforms. There aren’t many negatives to report — one of the few was that the company earned less from interest on loans due to consumers still paying off old loans.

Let’s take a look at some important numbers for Regions Financial…

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E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio is better than average for the industry. The balance sheet is in negative territory, but cash flow is strong. Operating cash flow is over $2 billion.

	Debt-To-Equity	Cash	Long-Term Debt
RF	0.55	$4.04 Billion	$6.22 Billion
IBKC	0.63	$623.07 Million	$429.30 Million
FNB	0.94	$367.59 Million	$294.51 Million

T = Technicals on the Stock Chart Are Strong

Regions Financial has outperformed smaller competitors IberiaBank Corp (NASDAQ:IBKC) and F.N.B. Corporation (NYSE:FNB) over the past year. However, Regions Financial only yields 0.50 percent whereas IberiaBank yields 2.60 percent, and F.N.B. Corporation yields 4.30 percent.

	1 Month	Year-To-Date	1 Year	3 Year
RF	3.48%	4.21%	52.26%	12.63%
IBKC	4.13%	5.31%	-3.83%	0.96%
FNB	2.00%	5.46%	-5.93%	77.71%

At $7.43, Regions Financial is currently trading above all its averages.

50-Day SMA	6.85
100-Day SMA	7.01
200-Day SMA	6.78

E = Earnings Have Been Weak

Earnings and revenue have been weak since 2008, but Regions Financial just reported much stronger results.

	2007	2008	2009	2010	2011
Revenue ($)in billions	10.93	9.64	8.04	7.13	6.40
Diluted EPS ($)	1.76	-8.09	-1.27	-0.62	-0.34

We already know what happened this quarter. Now let’s take a look at previous quarters.

	9/2011	12/2011	3/2012	6/2012	9/2012
Revenue ($)in billions	1.57	1.54	1.52	1.50	1.50
Diluted EPS ($)	0.08	-0.47	0.11	0.20	0.21

T = Trends Support the Industry

Regional banks have been on a tear over the past year. These have been faster turnaround stories than the big banks because they weren’t tied to as many exotic and risky schemes during the financial crisis. While the industry still isn’t completely out of the woods, the upward momentum is strong. The only potential threat is a downturn in the broader economy.

Conclusion

Regions Financial is a true turnaround story. This company took the correct approach by dealing with the pain early so it could make itself stronger for the future. That approach is now paying off. It’s also great to see a bank with good debt management, which is rare in today’s world.

Regions Financial is an OUTPERFORM.

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Read the original article from Wall St. Cheat Sheet

Wall St. Cheat Sheet » Is Regions Financial Likely to Outperform?

Is Regions Financial Likely to Outperform?