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Why Is BB&T (BBT) Up 1.5% Since Its Last Earnings Report?

More than a month has gone by since the last earnings report for BB&T Corporation BBT. Shares have added about 1.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is BBT due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

BB&T Q4 Earnings Beat on Higher Revenues, Costs Rise

BB&T’s fourth-quarter 2017 adjusted earnings of 82 cents per share outpaced the Zacks Consensus Estimate of 80 cents. The figure excluded adjustments related to the tax reform.

Results reflected a rise in revenues driven by higher rates and loan growth. However, an increase in operating expenses and higher credit costs were the undermining factors.

Net income available to common shareholders (GAAP basis) was $614 million or 77 cents per share compared with $592 million or 74 cents per share in the prior-year quarter.

For 2017, earnings of $2.74 per share declined 1.1% year over year. Net income available to common shareholders (GAAP basis) was $2.2 billion, down 1.7% from 2016.

Revenues Improve on Modest Loans & Deposits Growth

Total revenues (taxable-equivalent) for the quarter came in at $2.91 billion, up 5% year over year. The figure also outpaced the Zacks Consensus Estimate of $2.84 billion.

For 2017, total revenues (taxable equivalent basis) were up 4.8% from the prior year to $11.5 billion. The figure was marginally above the Zacks Consensus Estimate of $11.4 billion.

Tax-equivalent net interest income rose 4.7% from the prior-year quarter to $1.68 billion. Also, net interest margin expanded 11 basis points (bps) from the prior-year quarter to 3.43%.

Non-interest income increased 5.4% year over year to $1.23 billion. Rise in all fee income components except insurance income and mortgage banking fees, drove the increase.

Non-interest expenses of $1.86 billion increased 11.2% from the year-ago quarter. The increase was primarily due to a rise in personnel expenses, net merger-related and restructuring charges and professional service costs.

BB&T’s adjusted efficiency ratio came in at 57.2%, down from 58.3% in the prior-year quarter. A fall in efficiency ratio indicates rise in profitability.

As of Dec 31, 2017, total deposits were nearly $157.4 billion, up marginally from the prior quarter. Also, total loans and leases of $144.8 billion were up slightly on a sequential basis.

Credit Quality Improved

As of Dec 31, 2017, total non-performing assets (NPAs) were $627 million, down 22.9% year over year. As a percentage of total assets, NPAs came in at 0.28%, down 9 bps year over year.

Also, during the quarter, allowance for loan and lease losses came in at 1.04% of total loans and leases held for investment, on par with the prior-year quarter. Further, net charge-offs were 0.36% of average loans and leases, down 6 bps year over year.

However, provision for credit losses was $138 million at the end of the quarter, reflecting a 7% increase on a year-over-year basis.

Profitability Ratios Strong, Capital Ratios Weaken

At the end of the reported quarter, return on average assets was 1.19%, up from 1.16% in the prior-year quarter. Return on average common equity improved to 9.10% from 8.75% as of Dec 31, 2016.

As of Dec 31, 2017, Tier 1 risk-based capital ratio was 11.8%, down from 12.0% in the year-ago quarter. BB&T's estimated common equity Tier 1 ratio under Basel III (on a fully phased-in basis) was approximately 10.0% as of Dec 31, 2017, down from 10.2% as of Dec 31, 2016.

Share Repurchases

During the reported quarter, BB&T repurchased $373 million worth shares through open-market purchases.

Outlook

First-Quarter 2018

On a sequential basis, management projects GAAP NIM to be down 1-3 bps. Further, core margin is expected to be stable due to the adjustment on tax exempt assets from the new corporate tax rate change.

Fee income is expected to be up 1-3% year over year.

Excluding merger-related and restructuring charges, and other onetime items, management expects expenses to remain flat year over year.

Management expects the effective tax rate to be 21%.

On an annualized basis, management expects total average loans to grow 1-3% sequentially.

Management projects NCOs to increase sequentially and be in the range of 35-45 bps on the assumption that there is no deterioration in the economy. Also, loan loss provisions are expected to match NCOs in addition to providing for loan growth.

2018

Management expects revenues (tax equivalent basis) to grow 2-4% range year over year. Also, total average loans are projected to rise in the range of 2-4%.

Based on assumption of above-mentioned loan growth and stable securities book, earning assets are expected to rise approximately 3%.

Moreover, operating expenses are anticipated to remain stable and the effective tax rate to be 21%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There have been nine moves up in the last two months. In the past month, the consensus estimate has shifted by 7.8% due to these changes.

 

VGM Scores

Currently, BBT has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. Charting a somewhat similar path, the stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall,the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Interestingly, BBT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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