At BB&T, Growth Is The Best Asset

10/29/2012


  Recent Price
$29
  Dividend
$0.80
  Yield
2.8%
  P/E Ratio
11
  Shares (millions)
710
  52-Week Price Range
$34.37 - $21.03

BB&T ($29; BBT), a bank based in Winston-Salem, N.C., isn't a household name outside of the Mid-Atlantic and Southeast. But it should be.

Per-share profits have grown at least 30% in six consecutive quarters, and the bank did not report a net loss during any quarter of the recent downturn. Return on equity has been trending higher for more than two years, reaching 10% in the 12 months ended September, versus less than 7% a year ago.

BB&T's strong results have not escaped investors' notice, and the shares gained 49% in the 12 months ended Oct. 17, when BB&T reported weaker-than-expected September-quarter results and projected a decline in net interest margins. The stock's 11% decline since Oct. 17 seems like an overreaction. Loan growth remains solid, and BB&T seems capable of exceeding the modest 2013 profit-growth consensus of 8%. The stock, a Long-Term Buy, yields 2.8% and trades at 11 times trailing earnings, a discount of 20% to the median regional bank.

Improving environment

BB&T ranks among the 12 largest U.S. banks as measured by revenue, assets, and deposits. More than 1,000 of its roughly 1,850 branches are located in just three states — Virginia, North Carolina, and Florida.

In the September quarter, per-share profits rose 35% to $0.70 excluding merger-related charges, $0.01 below the consensus. Revenue rose 16% on 5% growth in net interest income (62% of revenue in the nine months ended September) and 40% higher noninterest income (38% of revenue). Insurance (37% of noninterest income) and mortgage banking (17%) accounted for most of the growth in noninterest income. BB&T averaged $112.72 billion in outstanding loans in the quarter, up 9% from a year earlier and an annualized 13% from the June quarter. Management says it expects loan growth of 5% to 7% in 2013, excluding contributions from recently acquired BankAtlantic.

Credit quality continues to improve, with just 0.97% of assets considered nonperforming, down from 1.83% a year earlier. As of Sept. 30, BB&T had $139 million of real estate in foreclosure, down 85% from $950 million a year earlier.

Margin pressures

Low interest rates are pressuring some banks' net interest margins, the difference between what they collect on loans and pay out on deposits. But BB&T has managed better than most. In the September quarter, BB&T delivered a net interest margin of 3.94%, well above the average of 3.51% for the 10 regional banks in the S&P 500 Index and topping its own annual margins from 2005 through 2009.

BB&T expects net interest margins to fall in the December quarter, hurt by tighter spreads on commercial loans and lower interest rates on investment assets. However, the company expects those lower rates to boost earnings in other areas.

Since cutting its dividend 68% in 2009 in an effort to raise cash to pay back federal bailout funds, BB&T has boosted the payout 33%, including a 25% hike in March. Investors can obtain an annual report for BB&T Corp. at 200 W. 2nd St., Winston-Salem, NC 27101, (336) 733-2000, www.bbt.com.

BB&T
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '12
0.70
vs.
0.52
+ 16%
34.37
-
30.41
14 - 13
Jun '12
0.72
vs.
0.44
+ 9%
32.74
-
27.40
15 - 13
Mar '12
0.61
vs.
0.32
+ 11%
31.94
-
25.26
17 - 14
Dec '11
0.55
vs.
0.30
- 1%
25.57
-
19.76
16 - 13
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
10.00
1.83
0.63
29.60
-
18.92
16 - 10
2010
11.07
1.16
0.60
35.72
-
21.72
31 - 19
2009
10.82
1.15
1.24
29.81
-
12.90
26 - 11
2008
10.40
2.71
1.86
45.31
-
18.71
17 - 7
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
91
97
78
42
67
95
58

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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