Charlotte, N.C.-Truist Financial Corporation (TFC) is a financial services company. The bank provides a range of banking and trust services for clients and for its digital platform. The company’s segments include Consumer Banking and Wealth, Corporate and Commercial Banking, and Insurance Holdings.

U.S. Treasury bond yields have been hitting multi-year highs, and the Fed has hinted at raising the interest rates quickly and aggressively this year to tame multi-decade-high inflation. An increase in Treasury yields helps banks generate more interest income. The yield on the 10-year Treasury note inched up four basis points yesterday to 2.875%. And investors’ interest in regional bank stocks is evident in  the SPDR S&P Regional Banking ETF’s (KRE) 10% gains over the past nine months.

However, TFC does not look well-positioned to capitalize on the industry tailwinds. The stock has declined 17.7% in price over the past six months, while it has retreated 10.2% year-to-date to close the last trading session at $52.57. It is currently trading 23.7% below its 52-week high of $68.95, which it hit on Jan. 18, 2022.

Here is what could influence TFC’s performance in the upcoming months:

Disappointing Financials

TFC’s total revenue declined 4.3% sequentially to $5.32 billion for its first quarter, ended March 31, 2022. The company’s net interest income decreased 3.1% year-over-year to $3.20 billion. Also, its noninterest income declined 7.7% sequentially to $2.14 billion. In addition, its net income available to common shareholders decreased 12.9% year-over-year to $1.32 billion.

Favorable Analyst Estimates

Analysts expect TFC’s revenues to grow 2.9% in its fiscal year 2022 and 7.4% in  fiscal year 2023. Its EPS for its fiscal year 2023 is expected to increase 13.7% year-over-year. And  its EPS is expected to grow 10% per annum over the next five years.

Discounted Valuation

In terms of forward non-GAAP P/E, TFC’s 10.67x is lower than the 11.27x industry average. Also, its forward P/S and non-GAAP PEG of 3.06x and 0.84x, respectively, are 1.7% and 21.7% lower than the 3.12x and 1.08x industry averages.

Low Profitability

In terms of trailing-12-month net income margin, TFC’s 27.62% is 9.4% lower than the 30.51% industry average. And its trailing-12-month ROCE and ROA of 10.12% and 1.17%, respectively, are lower than the 12.77% and 1.34% industry averages.

POWR Ratings Reflect Uncertainty

TFC has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TFC has a C grade for Quality, which is consistent with its 27.62% trailing-12-month net income margin, which is 9.4% lower than the 30.51% industry average.

It has a C grade for Stability. The stock has a 1.14 beta, which  justifies the Stability grade.

Among the 26 stocks in the Southeast Regional Banks industry, TFC is ranked #7.

Beyond what I have stated above, view TFC’s ratings for Growth, Value, Momentum, and Sentiment here.

The Winner

U.S. Treasury yields have been rising, and higher yields help banks increase their net interest income, thereby growing their total revenues. Despite its stock trading at a discounted valuation, TFC’s near-term prospects look uncertain due to its weak financials and lower-than-industry profitability. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does Truist Financial Corporation (TFC) Stack Up Against its Peers?

TFC has an overall POWR Rating of C, equating to a Neutral rating. Therefore, one might want to consider investing in other Southeast Regional Banks stocks with a B (Buy) rating, such as Peoples Bancorp of North Carolina, Inc. (PEBK) and The First Bancshares, Inc. (FBMS).

TFC shares were trading at $53.51 per share on Thursday morning, up $0.94 (+1.79%). Year-to-date, TFC has declined -7.93%, versus a -5.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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