Deutsche Bank Said U.S. Banks Stocks Not As Cheap As They Look (BAC, PNC, WFC, FITB, STI)
Deutsche Bank issued a report today suggesting U.S. Bank stock are not as cheap as they look, following the recent dilution.
The firm noted that banks that they cover have issued about $38 billion of common equity through common issuance and exchanging preferreds/hybrid. The firm said of the banks that raised capital, dilution averages 20%--with Regions Financial (NYSE: RF) (42%) and SunTrust (NYSE: STI) (26%) the most.
Deutsche Bank thinks normalized banks EPS may be 5 years of more out.
The firm updated their 2011 estimates for the banks and finds that bank stocks are trading at an expensive 13x the estiamtes. They said the cheapest stocks are Bank of America (NYSE: BAC), PNC (NYSE: PNC) and Wells Fargo (NYSE: WFC), while the most expensive are First Horizon National (NYSE: FHN), Fifth Third Bancorp (Nasdaq: FITB) and SunTrust (NYSE: STI). The firm notes their 2011 estimates assume no further capital raises, which they think are possible at some banks like BofA.
Deutsche Bank notes that bank stocks have declined 15% from recent highs, with some down 25%-30% (MI, RF, STI, ZION). In the near term, the firm expects that banks stock could rally into Q2 results, but said the gains may be short lived. In the near term, the firm prefers PNC over WFC, RF over MI and STI over ZION.
Below is a chart from Deutsche Bank on Bank stock P/E multiples for 2011 and normalized EPS (scroll down)
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