Nomura Securities Downgrades Fifth Third Bancorp (FITB) to Reduce
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Nomura Securities downgraded Fifth Third Bancorp (NASDAQ: FITB) from Neutral to Reduce.
Analyst Bill Carcach commented, FITB has outperformed KEY by ~16pp from its January lows and is ahead of the BKX YTD, but we expect a combination of disappointing loan growth, securities reinvestment headwinds, and negative EPS revisions to drive a reversal in FITB’s outperformance:
- FITB’s loan growth has been on a downward trajectory since 3Q15, driven by decelerating commercial, home equity, auto, and credit card loan growth. Looking ahead, the consensus is looking for growth to accelerate in 2016 / 2017, but we see downside to expectations
- FITB faces the greatest reinvestment risk in our coverage universe, with its securities portfolio accounting for 26% of its net interest income last quarter and securities yields that are ~2-3x that of current US Treasuries. We estimate that FITB would face the greatest EPS headwinds if it were to reinvest securities maturing in less than one year at current rates.
- We see 4% downside to 2016 and 2017 consensus EPS expectations for FITB, which currently trades at a two-turn premium to KEY despite having a weaker return outlook for 2017. While we get that the market is excited about “Project North Star”, we believe shares have gotten ahead of themselves; in contrast, we believe that skepticism over KEY’s ability to deliver on FNFG cost saves has weighed on shares, but we fully expect KEY to execute. We see value in being underweight FITB vs. KEY.
Shares of Fifth Third Bancorp closed at $20.69 yesterday.
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