BB&T (BBT) is lower Wednesday, after Sandler O’Neill cut its rating on the bank’s stock.
Analysts Stephen Scouten and Peter Ruiz cut their rating from Buy to Hold, with a $37 price target. They also lowered their 2016 and 2017 estimates for the company, given a higher expense run-rate and a slightly lower net interest margin. They write that the bank’s commentary from its first quarter, along with the expected timing of the cost saves related to recent transactions, and an ongoing low-rate environment made the rating cut necessary.
From the note:
The biggest deltas in our model came as we moved 2Q expenses up towards the company’s guidance of $1.75B and spread out the pending cost saves further into 2017 from NPBC and Swett & Crawford. In addition, we had also been assuming that loan growth could come on in the 3-4% range, but we think that more tempered expectations are appropriate and that the 3% level should be the top-end of the expected rage, especially given the bank’s 1%-3% guidance.
While we continue to view BB&T as one of the most well-diversified large regional banks – both in terms overall revenue generation and within its loan book in particular – we think that given the current earnings profile through 2017, our BUY rating is no longer warranted. We are lowering our rating to HOLD and our PT to $37 – which is ~11.8x our 2017E. We think that the benefits of BB&T’s diversified franchise will eventually be realized, but that the bank will first have to spend time to fully-integrate its recent acquisitions before it can move forward with more rapid growth plans.
For the second quarter, they expect BB&T to report 69 cents a share, ahead of the 66 consensus. They warn that the results will be “somewhat noisy” due to the NPBC deal that closed in April, but that there won’t be many cost saves from that transaction until after the third quarter, meaning expenses could be elevated in the near term.
BB&T was off by two cents in recent trading, although it’s down nearly 10% for the year.